UNIT 1

❖ SALES MANAGEMENT DEFINED

Sales management is the process of developing a sales force, coordinating
sales operations and implementing sales techniques that allow a business
to consistently hit, and even surpass, its sales targets.
If your business brings in any revenue at all, a sales management strategy
is an absolute must. When it comes to managing sales and boosting sales
performance for any size of operation, no matter the industry, the secret
to success is always precise sales management processes. This starts with
a great sales manager who knows how to inspire and lead a sales
department.
Besides helping your company reach its sales objectives, the sales
management system allows you to stay in tune with your industry as it
grows and can be the difference between surviving and flourishing in an
increasingly competitive marketplace.

❖ FUNCTIONS OF SALES MANAGEMENT

There are four main functions of sales management, each with a specific
purpose to ensure that a company’s sales activities are being executed
with the best chance of success. These four sales management functions
are:

1. Set Targets
A sales manager must be able to set realistic targets for their team, based
on previous performance and in line with the organisation’s overarching
strategy. Target setting should take into account sales team skills and
each person’s track record up until that point.

2. Manage The Sales Process

Customers are hardly ever going to be at the same stage of a company’s
sales process at the exact same time. A sales manager must understand
the sales process from start to finish, and be able to manage this process
as and when they spot potential conversion roadblocks.

3. Improve Efficiency
This management of the steps of the sales process is another function of
sales management. It involves assessing every interaction between the
brand and the potential customers and coming up with ways to rectify
hurdles and capitalise on opportunities, thereby improving the efficiency
of the sales process.

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4. Identify Excellence
Sales management is also a people role. One function is to ensure that
the personnel conducting lower-level sales activities are managed
correctly and efficiently. A sales manager should monitor how well
salespeople perform and step in to congratulate and motivate top
performers.

❖ Nature of Personal Selling

• The greatest freedom to adjust a message to satisfy customers

informational needs, dynamic.
• Most precision, enabling marketers to focus on most promising leads. vs.
advertising, publicity and sales promotion
• Give more information
• Two way flow of information, interactivity.
• Discover the strengths and weaknesses of new products and pass this
information on to the marketing department.
• Highest cost. Businesses spend more on personal selling than on any
other form of promotional mix.
• Goals range from
o finding prospects
o convincing prospects to buy
o keeping customers satisfied--help them pass the word along.

❖ Types of Sales Persons

• Order Takers
Seek repeat sales, make certain that customers have sufficient product
quantities where and when they need it. Do not require extensive sales
effort. Arrange displays, restocks them, answer phone calls. Low
compensation, little training required. High turnover of personnel. 2
types:
o Inside Order Takers receive orders by mail/phone, sales person in a
retail store.
o Field Order Takers travel to customers. Use laptop computers to
improve tracking of inventory and orders etc.
• Order Getters
Sell to new customers and increase sales to present customers, sometimes
called creative selling.
Generate customer leads, provide information, persuading customers and

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 closing sales. Required for high priced, complex and/or new products.
High pressure, requires expensive, time consuming training.

• Support Personnel
Facilitate the selling function. Primarily business to business products.
o Missionary Salespeople Distribute information regarding new
goods or services, describes attributes and leaves materials, does
not close sales. Assist producers' customers in selling to their own
customers. IE call on retailers and persuade them to carry the
product. Pharmaceuticals may go to doctors offices and persuade
them to carry their products.
o Trade Salespeople May perform order taking function as well.
Spend much time helping customers, especially retail stores, to
promote the product. Restock the shelves, set up displays.
Technical Salespersons Offer technical assistance to current
customers. Usually trained engineers etc.
o Service Salespeople interacts with customers after sale is complete.
o Team selling...entire team of selling professionals in selling to and
servicing major customers, especially when specialized knowledge
is needed to satisfy different interests in customers' buying centers.

❖ Elements of the Personal Selling Process

1. Prospecting and Evaluating

Seek names of prospects through sales records, referrals etc., also
responses to advertisements. Need to evaluate if the person is able
(Undergraduate degree to attend a graduate program), willing and
authorized to buy. Blind prospecting-rely on phone directory etc.

2. Preapproach (Preparing)
Review key decision makers esp. for business to business, but also family
o assess credit histories
o prepare sales presentations
o identify product needs.
Helps present the presentation to meet the prospects needs.

3. Approaching the Customer

Manner in which the sales person contacts the potential customer. First
impression of the sales person is Lasting and therefore important.
Strive to develop a relationship rather than just push the product.
Can be based on referrals, cold calling or repeat contact.

4. Making the Presentation

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 Need to attract and hold the prospects Attention to stimulate Interest and
stir up Desire in the product so the potential customer takes the
appropriate Action. AIDA
Try to get the prospect to touch, hold or try the product. Must be able to
change the presentation to meet the prospect needs.

Three types of presentations:

o Stimulus Response Format: Appropriate stimulus will initiate a
buy decision, use one appeal after another hoping to hit the right
button...Counter Clerk @ McDonald's "Would you like fries with
your burger?"
o Formula Selling Format: (Canned Sales Presentation) memoized,
repetitive, given to all customers interested in a specific product.
Good for inexperienced sales people.
Better with heavily advertised items that are pre-sold.
Telemarketing a credit card!!
o Need Satisfaction Format: Based on the principal that each
customer has a different set of needs/desires., therefore the sales
presentation should be adapted to the individual customer's needs,
this is a key advantage of personal selling vs. advertising.

5. Closing
The following are popular closing techniques:
o Trial Close (Minor decision close)
o Assumptive close (Implied consent close)
o Urgency close
o Ask for the sale close

6. Following Up
Must follow up sale, determine if the order was delivered on time,
installation OK etc. Also helps determine the prospects future needs.
Accomplishes four objectives:
o customer gain short term satisfaction
o referrals are stimulated
o in the long run, repurchase
o prevent cognitive dissonance

❖ Personal Selling Process

What comes to your mind when you hear the word "personal selling"? A
smooth-talking salesman who makes you nod your head before you understand
what he is saying? Repeated cold calls from a real estate agent who you've
never met? A heart-warming, inspiring talk with someone from a company

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before you buy their product? Clearly, personal selling can be good or bad
depending type of situation and the person handling it. Let's look at the bright
side and explore some features of an effective personal selling process.

Personal selling process definition

Personal selling process is a one-on-one selling technique where the salesperson
interacts directly with customers to sell a product or service.
Businesses can conduct personal selling via email, phone, video, or in-person.
It is more common in B2B and luxurious goods trading than everyday consumer
goods.

Personal selling process is a one-on-one selling technique.

Examples of products commonly associated with personal selling are cars,
houses, or insurance.

❖ Personal selling process approach

Personal selling can take a lot of time and effort. This method is used
mainly in high-value or highly personalised product transactions.

• Face-to-face interaction - Personal selling requires the salesperson to

meet customers face-to-face. In the past, sellers could only do this in
person. Nowadays, video conferencing tools such as Zoom or Google
Meet allow salespeople and prospects to meet online anytime, anywhere.
This removes the geographical constraint and saves marketing effort.
• Persuasion - Personal selling relies on the salesperson's interpersonal
skills to convince customers to make a purchase. However, this doesn't
mean salespeople can force the product on the customer. Instead, they
listen to understand the prospect's needs and then provide relevant
information to help them reach a buying decision.
• Handling objections - Objections happen all the time in personal selling.
It occurs when customers are not ready to make the purchase. The
salesperson's job is to find out their concerns and address them.
• Clear communication - The sales pitch should be informative and
engaging. This may require the salesperson to prepare and practice the
sales presentation before approaching the customers.

❖ Steps in the personal selling process

1. Prospecting
2. Pre-approach

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 3. Approach
4. Sales presentation
5. Handling objections
6. Closing
7. Follow-up

1.Prospecting
Prospecting means looking for prospective customers or leads. Marketers can
do this through online research, in-person networks or cold calls.
One crucial part of prospecting is lead qualification. That means choosing the
right lead to contact and approach with a sales pitch. This step is vital as
unqualified leads can waste a lot of the company's time and resources. They
won't make a purchase no matter how much effort you put into the sales pitch.

2. Pre-approach
After selecting the qualified leads, the salesperson must prepare for the first
contact with them. This means contacting the prospect via email or call to learn
more about their needs and to set up a meeting for further discussion.
The primary objective of pre-approach is to collect customer data and prepare
the sales pitch. No selling takes place at this stage yet.

3. Approach
When the solution is ready, the salesperson can approach and meet the
customers in person (or by phone/video, depending on the situation).
The first impression is essential here as it can make or break the coming sales
pitch. The goal of the approach is simple, though not easily executed - "hook"
the customers and create a smooth transition into the sales demonstration.

4. Sales presentation
The sales presentation is a crucial part of the personal selling process. A sales
presentation is a pitch the salesperson delivers to convince customers to buy.

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During the pitch, the salesperson will discuss the product features and why the
customers should purchase them. The key to a good sales presentation is to
follow the AIDA model - capture attention, hold interest, arouse desire, and
include a clear Call-To-Action.

5. Handling objections
The sales presentation is tough, but the actual challenge lies in handling
customer objections. When you propose an idea, there's a good chance it will be
rejected. This is not to say the customer will never buy your product, but they
might not be ready to make the purchase quite yet.
Objections can be genuine or mere excuses. It would require the salesperson to
learn the reasons behind the objections to counter them.

6. Closing
Closing is where the sales process wraps up. Both parties have reached a
decision. Closing means bringing the negotiation to an end and coming to an
agreement.

7. Follow-up
Even when the deal is closed, the salesperson has to follow up to assure
customers that the deal will be carried out correctly. After-sale follow-up is also
an opportunity for the company to build long-term relationships with
customers.

❖ Personal selling process examples

There are many examples of personal selling in real life. This section will
look at three examples in the travel, real estate, and automobile industry

1.Travel industry
A lot of personal selling takes place in the travel industry, especially in holiday
deals and packages. A good example is when a travel agent arranges a tour for
clients in an unfamiliar city. In this case, he might want to contact a local tour
guide and ask for a partnership.
The process may require the travel agent to meet the local guide face-to-face
and then discuss the reason and the benefits the tour guide can gain from the
partnership. If the tour guide agrees with the condition, the travel agent can
discuss further details such as customer needs and how the two parties will split
the profit.

2. Real estate
Personal selling is also commonplace in real estate. For example, in a property-
buying deal, the real estate agent will meet the customer in person to discuss

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their needs and preferences for a home. He then looks actively in the market for
property on sale and directs it back to the customer.
If the customer likes the property, the travel agent will arrange a viewing date
with the host. After viewing several properties, the customer can pick the one
they want, and the travel agent will direct the buying request to the house
owner. More negotiation will follow, and the deal is closed when both parties,
the host and prospective tenant, reach an agreement.

3. The automobile industry

A car is also a product for personal selling as people spend a lot of money on
them. A car deal would require the car seller to first email, text, or call the
prospective buyer to see if they are genuinely interested and then arrange a test
drive. During the test drive, the car seller can discuss the car's features and learn
about the customers' specific needs and budget.
• Personal selling is a one-on-one selling technique where the seller
interacts directly with the customer.
• Personal selling is common in the transactions of high-value or highly
personalised products.
• The main features of the personal selling approach include face-to-face
interaction, persuasion, handling objections, and clear communication.
• Effective personal selling involves choosing the right leads,
creating customer value, and using stories in the sales pitch.

❖ The 4 Key Roles of IT in Sales Management or computer

application

The role of IT in sales management is very simple; it’s designed to make the
life of you and your field sales team easier while increasing productivity and
performance. Every piece of software from mobile CRM to ERP, email to
Smartphone is built to serve that purpose.
And it’s very good at it too.
Field sales teams that employ the help of technology see an increase in revenue
by up to (58%) sales opportunities by (54%) deal sizes (44%) and conversion
rates up by (38%). That’s not to mention noted improvements in opportunity
pipeline management, territory management and customer onboarding.
With this level of ROI it should come as no surprise then that enterprise
companies in the US pay up to $3000 per field sales rep just to implement this
software and who can blame them?
Sales is arguably the fastest-paced, most competitively driven arm of any
business forcing sales managers to turn to technology for an edge.

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What we are going to look at in this article is why the role of IT in sales
management has grown into the necessity, and the specific technologies used to
aid each step of the sales management process.

The Role of IT in Sales Management Broken Down

There are many roles of IT in sales management but the 4 key areas we are
going focus on today are:
• Salesforce Automation
• Data Quality
• Making Better Business Decisions
• Going Online

➢ Sales Force Automation

• As a sales manager it’s your job to ensure your team sells enough to hit
target. That’s what you are measured against. And getting your team to
work as efficiently and productively as possible WILL lead to higher
sales.
How can we get our team working to this level of efficiency?
One way is to alleviate them of unnecessary tasks; those that do little towards
helping them sell, such as:
• Recording sales calls and emails
• Scheduling appointments
• Arranging follow-up visits
• Updating the CRM

This is all pure admin work and field reps spend hours completing this stuff.
That’s not say it’s not important, as it should be done and done well, but the role
of IT in sales management is to take this burden away from your team leaving
them to focus on sales-driving tasks.
IT sales software such as a mobile CRM with reverse reporting capabilities
automatically records activity your team has with clients.
Every email sent, phone call made and deal struck is immediately updated into
the system. This means the individual rep isn’t required to record this
information down on a notepad or forced to recall it at the end of the week,
when the details are a little hazy and probably less accurate.
It’s recorded and updated in real time.

➢ Artificial Intelligence (AI)

• Sales force automation is also carried out under the guise of AI.
• Now you may normally associate the term with the analyses of streams of
uncharted data. While this is certainly true of the majority of AI sales
systems, there are some specifically designed to aid in the recording of
data for reps working out in the field.

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• Personal sales assistant apps such as Cognitive work like digital PA’s, sat
next to the driver between visits. Using natural language processing
(NLP) field sales reps are able to communicate safely with the device
while driving, asking it to pull up information regarding an upcoming
visit, what was discussed previously, leave a comment on a past visit or
even prompt the device to send an email or call.
• Again, the role of IT in sales management is to make the lives of you and
your sales team that much easier while increasing productivity. By
converting these lost hours into sales-driving work, IT plays a massive
role in preparing reps for their upcoming visits without eating into
precious working hours.

➢ Data Quality
• In field sales the quality of data collected can be somewhat, debatable.
Because of the nature of their work, field reps spend most of their time on
the move travelling between sales calls.
• The information they record is therefore done on the fly. When there’s an
opportune moment to jot down on a notepad the meeting’s details, they
might do it. Though it’s highly likely it will be stored to memory for
recording later on.
• The problem is that this data is not only now scattered on various notes,
scrawling and maybe the odd spreadsheet, but if it’s being uploaded to
the CRM at the end of the week, then it’s accuracy (especially if being
recalled from memory) is going to be seriously questionable. Just try
recalling what you had for breakfast a couple of days ago, it’s tough!
• The role of IT in sales management is to digitize this process and make
it as transparent and visible as possible. It achieves this by providing field
reps with a tool they can use when directly in front of a client or
prospect. All data can therefore be collected in real time.
• For example, if a client wishes to make a new purchase order it can be
dialled into the mobile CRM app in seconds. Likewise if they’re unhappy
about the latest product delivery the sales rep can enter that information
straight into the system and immediately inform the customer success
team. They can then process the new order as quickly possible.

➢ User Adoption
• Data quality can also be increased simply by improving user adoption
rates. Paying out for a sales management system won’t automatically
solve your data quality issues. It will, however, make it a damned sight
better! But if the system is shunned because it’s too difficult to use, a
common issue for field sales teams, then the ROI will be minimal.

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• If they are not using the system, then there is no quality data left to
analyze. That’s why mobile CRM designers dedicate their time to
building a product that field reps want to use. Small details such as how
they navigate the app, the colors, fonts, layouts, feature positioning are all
taken into account to maximize its usability.

❖ Make Better Business Decisions

Now that we’ve established how sales technology can deliver you quality
data, it’s time to do something with it.There are several functions of a
sales executive that require the analysis of data in order to make
accurate business decisions. And the first, and probably most important
of those is sales forecasting.

❖ Why is it so important?
• Because it’s tied to almost every single aspect of the business. Everything
from the share price, stock count, marketing/financial/operations
planning, and manufacturing process are affected by its accuracy.
• Not to mention the impact it has on your sales team; the sales goals you
set are directly affected by your forecasted predictions and your reps
would be none too happy if you’ve got them shooting at some impossible
targets.
• The whole sales forecasting process is built around the usage of accurate
data; every single quantitative method of sales forecasting needs it in
order to turn out any reasonably useful insight.
• The information you receive weekly from your CRM, that guides your
decisions around strategy and areas of focus is based purely on the data
entered by your field sales team. So again, if the data is of poor quality,
entered as an afterthought by a team member at the end of the week the
decisions you make off the back of it are going to be of equally poor
quality, too.

➢ Going Online

• With the unrelenting rise of the internet, word-of-mouth has gone

online. Forums, blogs, Facebook, Twitter and other digital media have
become the playground for consumers to comment and share their
experiences about your business.
• People now have access to uncut, unedited reviews directly from their
desktop or mobile devices to help aid them with their buying choice.
They don’t even need to move off the couch.

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• What’s more, the growth of online and social media usage has completely
altered the course of a traditional buyer’s journey. Instead of picking up
the phone and relying on the salesperson to guide them through product
inventory, there are now several interactions or “digital touchpoints”
experienced prior to their visit.
• By the time a consumer has reached you it’s likely they’ve googled your
brand site, visited a forum, listened to a colleagues opinion, searched for
a realistic quote as well as read a professional publication review.
• All these processes will have carved a perception of your brand prior to
engaging you in any form of sales activity as the social conversation gets
under way. So in order to remain relevant, you and your sales team must
be ready to engage clients online.

➢ LinkedIn Navigator
• Even field sales reps are required to do their own prospecting every now
and again and one of the most powerful online tools available is LinkedIn
Navigator
• The great thing about LinkedIn is that it’s a social media channel
designed for doing business. It’s not frowned upon to build connections
and contact them directly if you see a mutually beneficial relationship.
• Now the navigator tool essentially gives you access to this giant database
and allows you to filter almost at will, segmenting by targeted sector,
business size, age – whatever it might be that interests your business.
As you can see, the role of IT in sales management is vast. Everything
from sales force automation to online customer engagement is supported
by some type of digital sales technology. But perhaps the most important
role it plays, especially for field sales, is that of accurate data collection.
By increasing the user-adoption rates of front-line technology used by
field reps it simultaneously increases the amount of real-time data
managers have with which to make accurate business decisions.
And it’s those business decisions which determine how successful you
will be as a sales manager.

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 Unit 2

❖ What Is Distribution Management?

Distribution management refers to the process of overseeing the

movement of goods from supplier or manufacturer to point of sale. It is
an overarching term that refers to numerous activities and processes such
as packaging, inventory, warehousing, supply chain, and logistics.
Distribution management is an important part of the business cycle for
distributors and wholesalers. The profit margins of businesses depend on
how quickly they can turn over their goods. The more they sell, the more
they earn, which means a better future for the business. Having a
successful distribution management system is also important for
businesses to remain competitive and to keep customers happy.

➢ Key Takeaways

• Distribution management manages the supply chain for a firm, from

vendors and suppliers to manufacturer to point of sale, including
packaging, inventory, warehousing, and logistics.
• Adopting a distribution management strategy is important for a
company's financial success and corporate longevity.
• Distribution management helps keep things organized and keeps
customers satisfied.

❖ Understanding Distribution Management

• Distribution management is critical to a company's ability to successfully

attract customers and operate profitably. Executing it successfully
requires effective management of the entire distribution process. The
larger a corporation, or the greater the number of supply points a
company has, the more it will need to rely on automation to effectively
manage the distribution process.
• Modern distribution management encompasses more than
just moving products from point A to point B. It also
involves gathering and sharing relevant information that can be used to

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 identify key opportunities for growth and competitiveness in the
market. Most progressive companies now use their distribution forces to
obtain market intelligence which is vital in assessing their competitive
position.
• There are basically two types of distribution: commercial distribution
(commonly known as sales distribution) and physical distribution
(better known as logistics). Distribution involves diverse functions such
as customer service, shipping, warehousing, inventory control, private
trucking-fleet operations, packaging, receiving, materials handling, along
with plant, warehouse, store location planning, and the integration of
information.
• The goal is to achieve ultimate efficiency in delivering raw materials and
parts, both partially and completely finished products to the right place
and time in the proper condition. Physical distribution planning should
align with the overall channel strategy.

❖ Advantages of a Distribution Management Strategy

• Aside from keeping profits up, there are many reasons a company may
want to use a distribution management strategy. First, it keeps things
organized. If there was no proper management system in place, retailers
would be forced to hold stock in their own locations—a bad idea,
especially if the seller lacks proper storage space.
• A distribution management system also makes things easier for the
consumer. It allows them to visit one location for a variety of different
products. If the system didn't exist, consumers would have to visit
multiple locations just to get what they need.
• Putting a proper distribution management system in place also alleviates
any potential for errors in delivery, as well as the times products need to
be delivered.
• Businesses can adopt distribution management strategies through
electronic platforms, which can help simplify the process and boost
product sales.

❖ Distribution Management as a Marketing Function

The fundamental idea of distribution management as a marketing

function is that the management of distribution happens in
an ecosystem that also involves the consideration of the following:
• Product: Not always a tangible object, product can also refer to an idea,
music, or information.

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• Price: This refers to the value of a good or service for both the seller and
the buyer, which can involve both tangible and intangible factors, such as
list price, discounts, financing, and likely response of customers and
competitors.
• Promotion: This is any communication used by a seller to inform,
persuade, and/or remind buyers and potential buyers about the seller’s
goods, services, image, ideas, and the impact it has on society.
• Placement: This refers to the process that ensures the availability,
accessibility, and visibility of products to ultimate consumers or business
users in the target channels or customers where they prefer to buy.
Effective distribution management involves selling your product while
assuring sufficient stocks in channels while managing promotions in
those channels and their varying requirements. It also involves making
sure a supply chain is efficient enough that distribution costs are low
enough to allow a product to be sold at the right price, thus supporting
your marketing strategy and maximizing profit.

❖ What Is a Distribution Channel?

A distribution channel is a chain of businesses or intermediaries through

which a good or service passes until it reaches the final buyer or the end
consumer. Distribution channels can include wholesalers, retailers,
distributors, and even the internet.
Distribution channels are part of the downstream process, answering the
question "How do we get our product to the consumer?" This is in
contrast to the upstream process, also known as the supply chain, which
answers the question "Who are our suppliers?"

❖ Key Takeaways

• A distribution channel represents a chain of businesses or intermediaries

through which the final buyer purchases a good or service.
• Distribution channels include wholesalers, retailers, distributors, and the
Internet.
• In a direct distribution channel, the manufacturer sells directly to the
consumer. Indirect channels involve multiple intermediaries before the
product ends up in the hands of the consumer.

❖ Understanding Distribution Channels

• A distribution channel is a path by which all goods and services must

travel to arrive at the intended consumer. Conversely, it also describes the

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 pathway payments make from the end consumer to the original vendor.
Distribution channels can be short or long, and depend on the number of
intermediaries required to deliver a product or service.
• Goods and services sometimes make their way to consumers through
multiple channels—a combination of short and long. Increasing the
number of ways a consumer is able to find a good can increase sales. But
it can also create a complex system that sometimes makes distribution
management difficult. Longer distribution channels can also mean less
profit each intermediary charges a manufacturer for its service.

❖ Channels of Distribution

Definition: The word ‘distribution’ means the allocation of something to

its recipients. Hence, the term, ‘channels of distribution refers to the
various mediums used for the purpose of distribution.
Channels of Distribution or Distribution Channel can be defined as
the path taken by the good or service when they move from
manufacturer to the end consumers. The movement of the goods
implies the physical distribution of the goods or the transfer of ownership.
It is the network of intermediaries such as wholesalers, retailers,
distributors, agents, etc., who carry out a number of interrelated and
coordinated functions in the flow of goods from its source to its
destination. Additionally, it creates utility of time, place, form, and
possession to the product by the quick and efficient performance of the
function of physical distribution.
Have you ever wondered that product manufacturing units of various
companies are set up at a particular location only, but the consumers of
that product are everywhere across the globe, so how these goods are
available to the people residing in a place distant from the place where
the manufacturing unit is located? Well, it is the channels of distribution
that act as an intermediary to make the goods available to the intended
consumer.

❖ Types of Channels of Distribution

Channels of Distribution implies the means through which the good or

service need to pass to reach the intended consumer. Based on the
number of intermediaries involved, the channel of distribution can be
short or long. Further, it has a great impact on the company’s sales, as the
higher the availability of the goods, the more will be its sales.
Depending on the type of the product, i.e. good or service, different
marketing channels are employed by the companies.

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 ➢ There are three main types of channels of distribution,
discussed hereunder:

1.Direct Channel
Prior to reaching the hands of the consumers, goods and services pass through
various hands. However, there are certain instances when the producer sells
goods directly to their customer, then such a channel is known as a direct
channel.
Hence, no middlemen exist in the case of the direct channels. And to do so, the
company can supply the product to the customer via their own online or retail
store, or salesman at the customer’s doorstep and arranging their own delivery
system. It is also called a Zero Level Channel.
Example: Consultancy firms, Passenger and freight transport services, banks,

etc.

2.Indirect Channel
When the producer produces goods on a large scale, it is difficult to make direct
selling of the goods to the customers. In this way, middlemen come into the
picture to ensure the availability of the goods to its customers. It may include
wholesalers and retailers. So, we can say that when there are a host of
intermediaries involved in the distribution process, it amounts to the indirect
channel of distribution.

• One Level Channel: Where only one middleman (either wholesaler or

retailer) is involved.

• Two Level Channel: Where two middlemen (both wholesaler and

retailer) are involved.

• Three Level Channel: Where along with wholesalers and retailers, the
mercantile agent is also involved. Hence, the producer deals with a
mercantile agent, then the wholesaler buys goods from that agent, and
sells them to retailers, who further sell them to its ultimate consumer.

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3.Hybrid Channels
The combination of the direct channel and indirect channel is called the hybrid
channel of distribution. When the manufacturer uses more than one channel to
reach the final consumer, it is said to be using the hybrid channel. This attracts
more consumers and facilitates more sales.
Suppose a manufacturer owning their own retail outlet and simultaneously,
offering goods to customers via e-commerce platforms or other retailers.

❖ Functions of Channel of Distribution

1. Transactional Functions: Functions like buying, selling, and risk-

bearing which are relevant to a transaction are called transactional
functions. Producers sell goods to intermediaries, who further sell them to
the customers. In this way, the title of goods changes hands, and goods
flow from producer to consumer. In the absence of any buying and
selling, there won’t be any transaction.

2. Logistical Functions: It involves the physical exchange of the goods

such as assembling, storage, sorting, grading, packing, and transportation.
This is to make certain that goods must reach the marketplace at right
time and sell to the consumers conveniently.

3. Facilitating Functions: Functions like post-purchase service,

maintenance, financing, information dissemination, channel coordination,
etc form part of facilitating functions.

❖ Objectives of Distribution channels

• To increase the availability of the product to the potential customers.

• To fulfill customer’s requirements by providing quality rich services.

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• To obtain promotional support from channel members.
• To procure timely and detailed market information.
• To increase cost-effectiveness.

❖ Factors Influencing Choice of Distribution Channels

• Market Consideration:
Size of the Customer, potential volume of sales, concentration of buyers,
size of the purchase order, and so forth are some of the factors which are
considered before choosing the distribution channel.

• Product Considerations:
Factors related to perishability, bulkiness, product value, etc. related to
the product are taken into consideration while making a choice between
the channels of distribution.

• Middlemen Considerations:
Types of intermediaries, services provided by middlemen, the attitude of
middlemen, availability of middlemen, and channel competition are the
factors that influence the choice of channel.

• Company Considerations:
Cost of distribution, management’s ability, services provided by seller,
long-run effect on profit, the extent of channel control, financial
resources, and experience and ability are the company considerations.

• A word from Business Jargons

Distribution Channel is the path followed by the good or service with
multiple levels or distribution points, from the production to the final
consumer. It is an important element of the downstream supply chain
which includes a host of intermediaries such as wholesalers, retailers,
distributors, agents, merchants, online stores, etc., which act as a link
between producer and consumer. These are called marketing channels.

❖ Distribution intermediaries in Marketing

A marketing plan often involves a number of distribution intermediaries.

As the intermediary, it is important to understand that your role is not
only to distribute and promote but also to be aware of what you are
distributing. By understanding the product or service, as well as its target

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 market, you can help ensure success for all parties involved in marketing
campaigns.
The article will discuss these points and provides some examples of when
an intermediary might use content marketing to promote their product or
service.

❖ What is an intermediary?

An intermediary is someone or something that assists others in a

particular task. They can help with conflict, offer advice, or connect
people to important information.

❖ What is a distribution intermediary?

A distribution intermediary is any individual or company that can sell

your product to its end user. This includes cooperative retailers like
Costco and Sam's Club, wholesale companies like Sysco and Baker
Hughes, brokerages like Wal-Mart Stores Inc., regional warehouse clubs
such as BJ's Wholesale or Cost Plus World Market Warehouse; auction
houses like Christies and eBay—and online retailers such as Amazon.

❖ Roles of distribution intermediaries in Marketing

Distribution intermediaries are needed in marketing because they can sell

your products to different retailers in an easier way. Some key benefits of
using a distribution intermediary include:
• Reduced costs from simplified logistics and variability reduction
• Less time to get goods on the shelf by cutting down on "last mile" issues,
such as transportation delays and supply reliability.
• Improved product visibility with increased opportunities for sampling or
proximity promotions.
• Greater opportunity to strengthen brand equity by differentiating the flow
of goods from the manufacturer.

❖ Categories of distribution intermediaries

1.Retailers

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Retailers are individuals or organizations that receive a business's goods directly
or through wholesalers, and resell them to end consumers.
Examples of well-known retailers:
• Walmart
• BJ
• Cost Plus World Market Warehouse
• Christies

2.Wholesalers
Wholesalers are individuals or organizations that receive a business's goods
directly or through exchanges with termites, and redistribute them to retailers.
Examples of well-known wholesalers:
• Costco
• Cost Plus World Market Warehouse
• Christies
• BJ's Wholesale

3.Agents & brokers

Agents and brokers are individuals or organizations acting on behalf of a
business in the search, promotion, communication and negotiation with
wholesalers.
Examples of well-known agents and brokers:
• Christies (goods)
• Manpower, Career link (human resource)

❖ How do distribution intermediaries work with marketers to

reach their target audience?

Distribution intermediaries work with marketing agencies by providing

access to previously unavailable markets. If you've created a product
that's not selling well, it may be because your target audience isn't seeing
it. Distribution intermediaries exist to help marketers reach more
customers and provide them with their desired products or idea. They act
as a go-between, negotiating on your behalf and providing you with the
best deal.
Distribution intermediaries are not sales reps or representatives who push
for a sale. Instead, they're middlemen who negotiate between you and
other parties to provide you with the most efficient way of selling your
product to consumers.

❖ Advantages & disadvantages of using a distribution

intermediary in Marketing

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 There are many advantages of using distribution intermediaries in
marketing, including the elimination of some costs, faster arrival on the
shelves with accuracy, and improved visibility with sampling or
proximity promotions.
Some disadvantages might include not being able to create a personalized
marketing strategy or tailored ads for the specific retailer, and your
intermediary may not be able to distribute your product to other retailers.

❖ Conclusion

The role of a distribution intermediary is important in marketing because

they can help you reach your target audience more efficiently. By using
an intermediary, marketers can reduce logistics costs and time to get
goods on shelves while improving visibility with sampling or proximity
promotions. Some disadvantages include not being able to create a
personalized marketing strategy tailored ads for the specific retailer as
well as not having access to other retailers if your intermediary has
already reached them all.

❖ What Is Wholesale Distribution?

Wholesale distributors play a vital middleman role in the journey of

products from the production line to their final customer. By purchasing
goods in bulk from manufacturers and distributing them to retailers, they
make sure stores have products to sell while enabling manufacturers to
focus on designing and building innovative products. Wholesale
distribution businesses often specialize in specific industries or product
categories and sometimes develop long-term relationships with
manufacturers.
Wholesale distribution plays a significant role in the economy,
accounting for more than 400,000 establishments with combined sales of
about $9 trillion in the U.S. alone, according to a First Research report.
Wholesale distributors are also experiencing rapid change due to a
number of factors: new competition, the growth of ecommerce and rising
customer expectations, among them. Here’s what you need to know about
how wholesale distribution works, including key benefits, challenges and
examples — plus tips for running a successful distribution business.

❖ What Is Wholesaling or Wholesale Distribution?

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 Wholesalers operate as middlemen between product manufacturers and
retailers or other businesses. They make a profit by buying products in
bulk at a discount and reselling them in smaller quantities at a higher
price to individual retailers. Many distributors specialize in specific
industry sectors or product categories and build up a great deal of
valuable industry expertise. This helps them provide value to their
suppliers and customers, while distinguishing themselves from
competitors.

❖ Wholesale vs. distribution.

The terms “wholesaler” and “distributor” are sometimes used

interchangeably to describe any companies that buy products from
manufacturers and sell them to retailers and other businesses (as opposed
to selling directly to consumers). However, the term “distributor” is often
applied more specifically to a narrower subset of companies that have
long-term relationships with particular manufacturers and help market
and support their products.

❖ Other common names for wholesalers and distributors.

To further muddy the waters, the way wholesalers and distributors are
described can vary by industry and product. Some of the other common
labels include:
• Supply house.
• Importer/exporter.
• Dealer.
• Jobber.
• Buying/selling group.
• Trading company.

❖ Key Takeaways

• Wholesalers play vital roles in the supply chain for most products, buying
goods in bulk from manufacturers and selling them to retailers and other
businesses.
• Wholesale distributors are responsible for acquiring goods, storing them,
preparing them for sale to their customers and then delivering them.
• Some distributors have strong relationships with specific manufacturers,
acting as their representatives in some markets and supporting their
marketing efforts.

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• Working with wholesalers can provide retailers and ecommerce sellers
with discount pricing, more consistent product supply and wider product
variety.
• Challenges facing wholesale distributors include new kinds of
competition, direct-to-consumer sales models and rising customer
expectations.

❖ Wholesale Distribution Explained

Historically, relatively few manufacturers have sold their products

directly to retailers or consumers. Wholesale distributors provide that
liaison, buying large quantities of products from manufacturers, storing
them and then supplying them to retailers and other businesses. This
enables manufacturers to focus on designing, building and marketing
their products without investing in extensive sales efforts or managing
relationships with a large number of small retailers. Wholesalers often
stock a wide range of products, which makes life simpler for retailers
because they can obtain a broad variety of goods without the added
complexity of working with many different suppliers.
Some industries have several levels of distribution, with larger wholesale
distributors focusing on supplying smaller, regional or specialist
distributors. Some wholesalers also act as suppliers of raw materials to
manufacturers.

❖ How Does Wholesale Distribution Work?

Wholesale distributors are responsible for acquiring goods, storing them,

preparing them for sale in smaller quantities to their customers and then
delivering them.
Success in wholesale distribution hinges on gaining a good understanding
of customer needs, market trends, costs and price points; building strong
relationships with business partners; and maximizing operational
efficiency. Wholesale distributors must build solid “upstream”
relationships with the suppliers or manufacturers of the goods they buy in
bulk. They must also develop trusted relationships with their own
“downstream” customers, be they retailers or businesses like restaurants,
contractors or hospitals.
In some cases, wholesalers may serve as dropshipping providers for
brick-and-mortar or e-commerce retailers. In a drop shipping
arrangement, the retailer doesn’t actually stock the product it sells to
customers. Instead, the retailer accepts payment and then passes the order
to the distributor, which ships the product directly to the customer.

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❖ Types of Wholesale Distributors

A variety of companies can be involved in wholesale distribution, even

within a single market or industry sector. Some of these participants
include:

• Manufacturers.
In addition to making products, some manufacturers distribute them to
retailers. This is especially true of boutique manufacturers, which may
also sell directly to consumers. But large companies do this, too, and
sometimes find themselves competing with traditional distributors.

• Exclusive or specialized distributors.

Some distributors act as the sole resellers for specific manufacturers.
They often help analyze the marketplace and actively market and sell the
manufacturers’ products as well.

• Regional distributors.
These companies focus on a specific country or geographic region. They
bring valuable regional knowledge of customer preferences, languages,
trends, regulations and import procedures. They may have exclusive
rights to distribute products in their territory.

• Wholesalers.
In some industry sectors, wholesalers are differentiated from distributors,
partly because they don’t represent specific manufacturers. They buy a
wide selection of products in bulk from a variety of manufacturers or
distributors and then resell them. They focus on competitive pricing,
storage and order fulfillment.

• Agents and brokers.

Agents generally don’t own or stock the products they sell; instead, they
focus on finding customers, negotiating pricing and making the sale on
behalf of the manufacturers or distributors that supply the products. They
may work on a commission basis.

• Jobbers.
In some sectors, individuals or small companies — jobbers — make daily
deliveries of products to retailers.

❖ Benefits of Wholesale Distribution

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 Wholesale distribution provides advantages for all businesses involved in
the supply chain, including manufacturers and retailers. Those benefits
include:
• Increased reach.
Manufacturers that work with wholesale distributors can invest less to
expand their market, since the wholesaler is responsible for distributing
the product to far-flung retailers. Manufacturers don’t need to hire,
develop or maintain expensive armies of salespeople with the expertise to
sell directly to customers.

• Simpler operations.
Wholesalers simplify business operations for both manufacturers and
retailers. Manufacturers can work with a relatively small number of
distributors to fulfill several large orders, instead of many small ones.
And retailers can get their supplies from just a few distributors, instead of
dealing with many individual manufacturers, thus simplifying ordering
and reducing shipping costs.

• Lower cost of business.

Because wholesale distribution simplifies operations for manufacturers
and retailers, it can also reduce their operating costs. Retailers that buy
from wholesalers may also pay lower prices than when buying small
quantities directly from manufacturers.

• Storage capability.
Wholesalers often have extensive warehouse capacity for storing
inventory, freeing manufacturers and retailers from the burden and cost of
maintaining large stocks of products.

• Supply chain stability and mitigation of risk.

By buying and maintaining inventory, wholesalers help secure a stable
supply of products and reduce risk of shortages for other companies in the
supply chain.

❖ Wholesale Distribution Challenges

Wholesale distribution has been the dominant model for connecting

manufacturers and retailers since the dawn of the industrial age.
However, wholesale distributors currently face challenges on several
fronts:

• New competitors.

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 Established wholesale distributors face growing competition from online
entities. These include online retailers and marketplaces moving into
business-to-business (B2B) sales, using their scale and existing platforms
to offer low-cost products, transparent pricing and fast shipping. Adding
to the competition, overseas suppliers can sell internationally using online
stores, often undercutting domestic distributors.

• Manufacturers selling direct.

Some manufacturers are opting to sell directly to consumers, either online
or via their own retail channels, both to increase their profit margins and
to maintain greater control over their brand and customer experience.

• Rising customer expectations.

Distributors need to meet increased customer expectations, which have
been fueled by retail ecommerce experiences: fast delivery, real-time
visibility into orders and delivery status, and 24/7 customer service.

• Profit pressure.
In an era of global trade, the downward pressure on prices — particularly
for commodity goods — is tremendous. Shrinking margins force
distributors to increase operating efficiency, another form of pressure.

❖ Wholesale Distribution Industries

Wholesale distributors tend to specialize in an industry or product

category. This enables them to deal effectively with nuances unique to
that market segment, such as regulatory requirements and seasonal shifts
in demand. Four of the largest preferred sectors within the wholesale
distribution industry are:

• Food and beverage.

The food and beverage industry is a high-volume wholesale segment —
and one with exacting requirements for storage, handling and distribution.
Food and beverage wholesalers must comply with freshness, hygiene and
refrigeration standards. They also must be experts in seasonal,
promotional and unexpected shifts in demand.

• Health care.
Health care distributors play a critical role with regard to partnering with
manufacturers to deliver drugs, medical equipment and surgical supplies
to hospitals, clinics and governments. Health care is a particularly
challenging and fragmented marketplace, requiring detailed knowledge of

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 regulatory issues. By handling customer interactions, wholesale
distributors enable manufacturers to focus on their core competencies.

• Technology.
Distributors underpin many high-tech and other electronics supply chains.
These companies typically must manage inventory from many suppliers
while staying on top of rapidly shifting technology trends and retailer
demands.
• Industrial.
This broad category includes suppliers that manage vast inventories of
many thousands of products for industrial customers or B2B retailers.

❖ 4 Ways Wholesale Distribution Helps Ecommerce

Historically, wholesale distributors primarily sold to traditional brick-

and-mortar retailers. However, the wholesale distribution model can also
make sense for modern-day ecommerce businesses. Among the benefits:

• Product availability.
Because wholesale distributors buy and store goods in bulk, they can help
ecommerce businesses gain consistent access to products.

• Discount pricing.
Wholesalers tend to get substantial discounts that enable them to offer
products at lower prices than if ecommerce sellers were to purchase them
directly from the manufacturer. In fact, some ecommerce companies may
not be able to purchase directly from manufacturers because they don’t
meet manufacturers’ minimum order-volume requirements.

• Product variety.
Wholesalers often source a wide variety of goods, enabling ecommerce
companies to quickly and easily expand their product selection.

• Dropshipping options.
Some wholesalers offer dropshipping arrangements whereby they deliver
the goods sold by the ecommerce firm directly to the end customer.

❖ Conclusion

Wholesale distributors continue to play a critical role in the supply chain

for most goods, enabling manufacturers to extend their reach while
ensuring that retailers can reliably obtain products for sale. The

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 challenges facing wholesale distribution include new competitors, direct-
to-consumer sales and higher customer expectations. Software can help
distributors increase efficiency and responsiveness to meet these
challenges.

❖ What is retail distribution?

Retail distribution refers to the process of getting goods from

manufacturers and producers to consumers. Throughout this journey,
goods may pass through many intermediaries such as wholesalers,
vendors, and retailers.
In the case of direct-to-consumer (D2C or DTC) brands, the path is
shorter because the brand sells the product directly to the customer
through their ecommerce website or retail store.

❖ How does retail distribution work?

There are several types of retail distribution strategies. While each of

these strategies ultimately result in getting the goods to the customers,
there are variations in the process and the number of outlets used.

1. Intensive distribution
This strategy involves using all available outlets to flood the market and
sell products to almost every potential customer. An intensive distribution
strategy is typically ideal for products with high levels of competition.
Since consumers have a wide variety of options to choose from, they’re
likely to settle for an alternative if their preferred brand isn’t readily
available. So by employing a wide distribution network, businesses can
make their products more accessible than their competitors and gain
leverage.

2. Selective distribution
Selective distribution involves taking a more targeted approach to retail
distribution because it utilizes outlets in certain locations. As a result,
products are still widely available to interested customers but not as
scattershot as with an intensive distribution strategy.
A selective distribution method is ideal when your target audience is
willing to do some shopping around and isn’t interested in an alternative
brand. For example, some consumers may be loyal to the Nike brand and

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 would be willing to shop around to find the perfect pair of Nikes instead
of buying a similar design from other brands such as Puma or Adidas.

3. Exclusive distribution
As the name suggests, this is a highly targeted distribution strategy that
involves restricting distribution to a single distributor, wholesaler, or
retailer in a specific area. This type of distribution works well for brands
that want to maintain a sense of exclusivity, catering to upscale customers
who are willing to spend more for higher-quality products or for certain
brands.
For example, luxury brands like Hermés follow this strategy, making
select products like the Birkin or Kelly bag available only in their brick-
and-mortar stores.

❖ How to choose the right retail distribution strategy

With each of these different distribution strategies having unique benefits,

it may be challenging to decide which is the right choice for your
business. That said, making the right decision is crucial because
your distribution logistics and retail supply chain rely heavily on the
distribution strategy you choose.

1.intensive distribution works best if:

• You have the infrastructure, budget, production facilities, and supply
chain efficiency to handle mass distribution.
• The product price is accessible to the masses.
• You can sign on large retailers to carry out distribution.
• Your target audience overlaps with that of the retailers who will distribute
your product.
• You’re just entering the market and want to raise brand awareness.

2. selective distribution is ideal if:

• The product has regional appeal.
• You’re targeting a more specific demographic.
• The product has a higher price point and is less accessible to the masses.
• You have limited manufacturing and distribution capability.
• The product is specialized and has a more niche appeal.
• The product has a regional appeal.

3.Exclusive distribution would be the best choice if:

• The product falls under the luxury category.
• You want to maintain exclusivity.

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• You’re dealing in products with significantly higher price points and are
not marketable to the masses.
• The brand is well-established and boasts a long-term pedigree.
• Your products appeal to a very specific audience.

❖ How to optimize your retail distribution strategy

Even if you already have a retail distribution strategy in place, that

doesn’t guarantee that you’re getting the most out of it. If your retail
distribution efforts are yielding more headaches than profits, it’s time to
look for opportunities to improve your strategy.

➢ Distribute inventory based on consumer demand

Regardless of what retail distribution strategy you’re using, having your
inventory close to your customers is an effective way to streamline
distribution and fulfillment. This would involve distributing your
inventory strategically across different distribution centers based on
historical demand.
For example, let’s say there’s high demand for your product in a certain
region and lower demand in another region. So when you run out of stock
in the high-demand area, you might have to send out new orders from the
distribution center that sees lower demand and has extra inventory in
stock.
As a result, products have to travel for longer distances to be shipped all
the way to the high-demand area. This not only slows down the supply
chain but also increases shipping costs.
Instead, strategically relocating your inventory to the high-demand
distribution center could help you save time and money transporting the
goods to your customers. Similarly, you might want to allocate more
inventory to retailers that have done exceptionally well at selling your
products. That way, they won’t have to deal with stockouts and
experience missed sales opportunities.

❖ Audit your distribution strategy for inefficiencies

With so many moving parts involved in B2B distribution, it’s only
natural that there will be several inefficiencies in your processes. It’s
important to regularly audit your distribution strategy to look for any
inefficient processes that should be optimized or replaced altogether.

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 Perhaps you have multiple partners to handle different parts of your
distribution process.
For example, you may have one partner that handles retail
warehousing while someone else handles fulfillment and another partner
takes care of last-mile deliveries. If any one of these partners faces
disruption to their normal operations, the rest of the supply chain
experiences a delay that could significantly impact your bottom line.
Instead, relying on a single partner who can handle all those different
operations can help you simplify and streamline the process.
Your audit should also look for opportunities for cost reduction. Identify
the costliest stages of distribution and see if there are cheaper options.
Distributing products from one central hub can get expensive real fast
with products having to travel through multiple shipping zones to reach
the end consumer. Instead, leveraging regional distribution and
fulfillment solutions can significantly cut down shipping costs while
improving delivery speeds.

❖ Partner up with a 3PL

• Regardless of which distribution strategy you’re using, working with

a third-party logistics company is an excellent way to streamline and
optimize your distribution logistics. By taking care of the entire
warehousing, picking and packing, and shipping processes, they help you
save time and speed up your fulfillment operations.

• Find a 3PL with a distributed network of fulfillment centers so you can

strategically store your inventory across multiple locations. This enables
you to get your inventory closer to the end consumer and quickly ship out
orders from the most convenient locations. As a result, retail orders are
fulfilled more easily, enabling you to provide fast and efficient deliveries
with affordable shipping costs.

• By optimizing this retail fulfillment process, you’re ensuring that the

supply chain moves seamlessly and efficiently. This subsequently
impacts your distribution strategy because there are no bottlenecks or
delays that could disrupt the movement of goods to your end customers.

❖ What is physical distribution?

Physical distribution refers to the movement of finished goods from a

company’s distribution and fulfillment network to the end user. In

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 ecommerce, physical distribution involves several ecommerce supply
chain activities including warehousing, inventory control, order
processing, retail fulfillment, and shipping.
In many cases, physical distribution of goods consists of multiple
fulfillment centers within a single distribution network to reduce shipping
costs and speed up transit times for customer orders.

❖ Warehouse Management System

Merchant Plus is for in-house fulfillment to reduce picking errors, mange
inventory in real time, and scale faster.

❖ Why is physical distribution important in ecommerce?

Even though ecommerce takes place online, physical distribution is

important because it is linked to three critical business objectives that
impact your bottom line: faster shipping, reduced logistics costs, and high
customer satisfaction.
Here is a closer look at how physical distribution contributes to supply
chain efficiency:

1. Supports faster shipping times

The ability to offer customers faster and affordable shipping options has proven
to reduce cart abandonment and increase customer loyalty, especially since
marketplaces like Amazon and Walmart Marketplace have set high expectations
for fast shipping.
Physical distribution for faster shipping can be done by strategically storing
inventory across several locations (or a centralized location) based on where
your customers are, rather than shipping all orders from a single warehouse (for
young brands, a single warehouse is often close to where they live, but this is
not always close to the majority of their customers).
For instance, if you store inventory in Chicago, you can reach other regions of
the country faster, then let’s say, storing all your inventory in Los Angeles when
you have customers in both the Midwest and the East Coast.
Ultimately, the quicker a customer gets their order, the happier they are and
more likely they are to buy again.

2. Reduces physical distribution costs

If you achieve a faster, more efficient last-mile delivery without the need for
expensive expedited shipping, you not only reduce costs for you but you can
also pass those savings on to your customers, whether you offer free shipping in
exchange for a minimum spend or charge real-time carrier rates.

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For example, if your customers are scattered across the US, distributing
products in different US regions can reduce the average shipping zone a
package is sent to reach its destination. The higher the zone, the more expensive
it will be, further building the case for optimized physical distribution.
Note: You can use historical order data and other distribution metrics to
determine where your customers live and if it makes sense to store inventory in
one or more locations to save on costs.

3. Improves customer satisfaction

Strategic physical distribution not only improves your bottom line, but it
ultimately leads to higher customer satisfaction and a better customer
experience.
By optimizing shipping routes and storing inventory closer to your customers,
you save money while reducing time in transit, so customers receive their orders
faster and at an affordable price.
Implementing a cost-effective physical distribution model can also allow for
better shipping incentives, such as free shipping on offers like bundles, upsells,
or a minimum spend threshold to further offset costs.

4 functions of physical distribution

An effective physical distribution model involves several different functions

throughout the retail supply chain. Here are the different functions of physical
distribution that every ecommerce business should pay attention to:

1. Automated order processing

Implementing technology that automates order processing allows you process
orders from anywhere by tracking orders in real time.
No matter where a customer places an order, order processing technology
allows you to automatically verify and process orders. Order information is
automatically sent to the fulfillment center location closest to the order’s
shipping destination.
Order processing software is often integrated with a fulfillment or inventory
management system, making it easier to track inventory and manage orders in
one place. This way, you can better control stock, optimize inventory levels, and
make sure you have enough inventory stored at each distribution location.

2. Warehouse management
How you manage a warehouse also impacts how well your physical distribution
model works. Warehouse management consists of receiving inventory,
optimizing storage, tracking stock levels, and picking, packing, and shipping
orders.

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To keep your warehouse running efficiently, consider adopting a warehouse
management system (WMS) that will give you visibility into your warehouse
operations, which SKUs are stored at which location, inventory
forecasting data, and operational workflows.
A WMS can also help keep warehouses organized by SKU, optimize space, and
reduce human error by eliminating manual processes.

3. Inventory control
Keeping an eye on inventory as it moves can be a time-consuming task, but
with the right inventory tracking processes in place, you can easily
optimize inventory levels across your network and avoid stockouts and dead
stock, as well as warehouse picking errors.
Inventory control focuses on optimizing operations and often involves the
implementation of a WMS, from scanning in new items in real time on the
warehouse floor to preparing units for kitting and assembly.
By implementing technology processes to better control inventory, you can
improve inventory optimization while expanding into multiple distribution
centerlocations.

4. Automated shipping
Physical distribution of inventory also requires a shipping strategy. You will
need to think through how orders from a warehouse or fulfillment center will be
shipped to the customer in the most cost-effective way possible.
Shipping accounts for the bulk of physical distribution costs, so it’s important to
keep track of your shipping costs throughout your network.
If you partner with a 3PL like ShipBob, you can automate the shipping process
no matter how small or large your 3PL distribution network is.
Automating the shipping process comes with several key advantages, including
the ability to aggregate and access shipping insights such as data on average
transit times, cart values, shipping methods, and shipping destinations to help
you optimize your costs and test different shipping price strategies.
ShipBob also partners with major shipping carriers to negotiate rates, so you
can pass the savings on to your customers.

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 Unit 3

❖ What Is Sales Planning?

Sales planning sets sales targets and defines the steps a company takes to
reach those targets and meet the goals set by the plan. A sales plan is the
document that outlines the strategies employed to achieve success.
Effective sales planning addresses a variety of markets and evaluates the
product or service needs of the consumer. In this article, we define sales
planning and provide tips and a template to begin the sales planning
process.

❖ What is sales planning?

Sales planning is the process of defining sales targets and creating a

strategy that meets goals and achieves sales and marketing results. The
sales plan works in collaboration with the marketing plan and the
business plan. The marketing plan details the strategies while the business
plan sets the initial intentions for the company. Annual or quarterly sales
plan updates ensures the plan stays on course and allows for changes.
Like marketing and business plans, sales plans are living documents that
evolve over time. Past experience often dictates the desired achievements
of the sales plan, allowing for alterations as the plan is put into action.
Ideally, sales planning addresses six factors that encompass a winning
sales strategy:

1. Create a situational analysis

By gathering data and analyzing trends, sales plans assess the current situation
to outline strategies based on historical data. Data and trend analysis can
identify obstacles and build on the strengths of the sales plan. These actions
provide the blueprint for designing new strategies.

2. Identify objectives and goals

36
Effective sales planning defines company sales targets to include the interests of
both the consumer and the business. Sales goals aim to increase revenue, launch
a new product or increase brand awareness. Examples of sales goals are:
• Increase monthly or annual revenue
• Lower costs and increase profit margin
• Boost customer value
• Increase sales leads

3. Set a strategy
When setting a strategy, sales teams outline individual roles and responsibilities
based on team member strengths and abilities. For example, assign the team
member who excels at social media posts to oversee that sales channel.
Strategies should integrate with finance and operations to set and achieve
targets and improve sales forecasting.

4. Set a sales budget

Sales planning defines the budget(s) for the project and outlines how and when
revenue is spent or generated. Setting and adhering to a budget allows sales
teams to use resources effectively while keeping the company within its
financial constraints.

5. Develop communication and engagement

Effective sales teams understand the objectives of the company and the goals of
the sales plan to carry out tasks according to expectations. Communication
provides clear direction for sales teams and engages team members to meet their
specific goals or milestones. Involve stakeholders in the sales planning process
to ensure sales plans are comprehensive and integrate relevant departments.

6. Set controls and measurements

Controls and measurements determine the direction a company is moving, or
whether it's time to change strategies and consult past sales data for insight.
Controls determine the metrics used to gauge success, while monitoring the
progress of the sales plan promotes strategic improvement.

❖ Why is sales planning important?

Sales planning is an important aspect of business that identifies current

issues, such as a lack in sales, and seeks to find solutions or develop
strategies. Sales planning takes advantage of new opportunities, such as
when a company develops a new product, to create brand awareness or
interest. Sales plans address various sales opportunities and the plan's

37
 objectives may vary depending on whether the company sells directly to
the consumer, or to another business.
Ideally, a sales plan:
• Define targets
• Creates strategies
• Identifies tactics
• Motivates teams
• Sets budgets to achieve targets
• Reviews goals and suggests improvements

❖ Tips for sales planning

Below is a list of tips for future sales planning:

❖ Understand your customer

For a company to effectively sell a product or service to a consumer, it's
crucial to understand the needs of the consumer. Companies often
conduct market research or host focus groups to target customers and
understand how to fulfill expectations or solve a problem. Send out
surveys to customers to get feedback on products or services and
incorporate those ideas into the next sales plan. Use all responses and
data to build a profile of your ideal customer. Your customer profile, or
persona, determines:
• Where to find customers
• Consumer preferences
• Consumer spending habits

❖ Define the obstacles

Sales plans analyze the competition to determine how they are successful
or where they lack direction. Understanding how the competition works
adds to sales planning to create innovative solutions or improve current
practices. List the pros and cons of your competition to strategize how to
improve on their strengths while outlining how to avoid negative impacts.

❖ Consult with key people and encourage feedback

While marketing and sales are the primary drivers of a sales plan,
consulting with other departments or key personnel helps to complete the
sales plan and address all contingencies. Finance personnel may have
input on budgets, while upper management can provide feedback for
current or past sales or revenue expectations. Sales plans are a
conglomeration of ideas and concepts from a range of sales and
marketing team members. Once it's complete and prior to
implementation, review the sales plan with teams or personnel and
encourage feedback to improve the plan.

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❖ Set realistic goals
It may be a lofty goal to increase sales by 150%, but not always a realistic
one. A sales plan's success should be measurable, so that companies have
a detailed record of what worked and what did not. Use the SMART
method to set sales goals and consider celebrating each success with team
members to encourage success.

❖ Use your own experience

Calling on past personal experience can shape a sales plan by providing
insight on what customers ultimately want from a product or service.
When forming a sales plan, keep your own experiences in mind. Think
back to when you purchased a product or service and use your experience
to analyze:
• How you heard about a product
• Where you bought the product
• How and why the product appealed to you
• How you evaluated the product
• How you approached the purchase
• What factors led to the final decision

❖ Trust assumptions
Data often gives an accurate estimate of how a past sales plan worked or
how to improve the plan. Sales forecasts make assumptions about future
sales or activity based on historical trends or buying practices. When
writing a sales plan, rely on assumptions to guide the strategies.
Remember that sales plans are flexible and subject to change as
conditions warrant.

❖ Define the value

Consumers choose products for the benefit, rather than the features. Sales
plans define the value of a product or service and what it will do for the
consumer. Sales planning seeks to define the company's competitive
advantage and how the company differs from its competitors.

❖ Define milestones
Sales plans may have an ultimate goal, but also set milestones to make
sure the plan is on the right path. Milestones motivate teams and
encourage healthy competition to meet them. To define milestones, make
comparisons between the business and standards of the industry. For
example, if your industry's average email open-rate is 27%, sales

39
 planning might set a goal to increase your company's open rate by 10%
overall with milestones of 2% in the first quarter, 3% in the second and
5% in the third.

❖ Focus on your niche

A niche is not only a specific product or consumer, it includes company
culture, branding and messaging. A niche defines the company's current
market position and identifies its competitors. Focusing on a niche guides
the sales plans so it builds on the strengths of the business, overcomes
obstacles and increases visibility. Effective sales plans consider how to
expand the niche. For example, a company that sells ice cream products
may also sell ornate ice cream sundae glasses, or offer demonstrations on
how ice cream is made to engage customers and encourage sales.

❖ Identify strategic partners

A sales plan organizes strategies to increase sales; this includes naming
resources that achieve goals and boost product awareness. These
resources might originate inside the company, or similar businesses work
together to cross-promote products. Sales planning determines
incorporates strategic partners who can:
• Provide product demonstrations
• Give informative speeches or product presentations
• Host webinars to promote sales
• Develop mastermind groups for further strategizing

❖ Sales Organisation:
• Sales organisation consists of human beings or persons working together
for the effective marketing of products manufactured by the firm or the
products purchased for resale. Sales organisation co-ordinates the efforts
of members of a group to bring about a desirable result. It provides an
efficient, economic and flexible administrative set up to ensure timely
movement of products from the warehouse to the ultimate consumer.
Thus it provides satisfactory job to buyers and sellers.
• A sales organisation has a number of departments. It has a planned and
well co-ordinated structure. It performs the functions of planning,
organizing and controlling marketing and distribution of products. Sales
organisation is a foundation for effective sales planning and sales
policies. Systematic execution of plans and policies and programmes of a
sales organisation control all the sales activities. As such it ensures
maximum efficiency and profitability without losing consumer service
and satisfaction.
• According to Boiling, “A good sales organisation is one wherein the
functions or departments have each been carefully planned and co-

40
 ordinated towards the objective of putting the product in the hands of the
consumers—the whole effort being efficiently supervised and managed,
so that each function is carried out in the desired manner.”

❖ Need for a Sales Organisation:

“A sales organisation is like a power station sending out energy, which is

devoted to the advertising and selling of particular lines; and there is a
tremendous waste of energy between the power station and the points
where it reaches the consumers. Therefore, there arises the necessity of
organizing the sales department.”
So long as the firm is a small one, there is no need for sales organisation,
as the proprietor himself can sell all the output or in certain cases, he is
assisted by one or two salesmen, under his direct control. But when the
firm or the business itself expands, because of extension of markets,
production in large-scale, competitive market etc., the need for a sales
organisation is felt.

❖ The need arises because of the following factors:

1. Production in anticipation of demand, which must be sold.
2. To create demand for the products through efficient salesmen.
3. Execution of orders without delay.
4. Satisfactory action against complaints from customers.
5. Collection of credit sales.
6. Keeping enough stock by looking at the future demand.
7. Maximum contribution to profit.
8. To enforce proper supervision of sales-force.
9. To divide and fix authority among the subordinates.
10. To locate responsibility.

❖ Importance of Sales Organisation:

A sales organisation is the mechanism through which a sales manager’s
philosophy is translated into action. The sales organisation provides the
vehicle for making decisions on planning, organisation, selection and
training of salesmen, their motivation, directing and controlling them. It
also provides vehicle through which these decisions are implemented.

“A business organisation is like a home. It has characteristic atmosphere.

In some homes the head of the household and all its members are vitally
concerned about religion, politics or some other interest—the occupations
of the individual members being only of minor interest. In other homes
where the personality of the head of the household dominates the

41
 activities and spirit of the members the opposite occurs. Like any group a
business organisation has its own culture, traditions, and to some extent
its own language and climate.” —Hepner

“A sale organisation is like a power-station sending out energy which is

devoted to the advertising and selling of particular lines and there is a
tremendous waste of energy between the power station and the points
where it reaches the consumers. Therefore, there arises the necessity of
organizing the sales department.” —Boiling

“Sales are the life blood of business,” Sales organisation is part and
parcel of a business firm. All the departments are carefully plaited in a
good sales organisation.

❖ The importance of the sales organisation, in brief, is:

1. Blood circulation of a human body keeps a man alive and in sound

health. Similarly the sales strengthen the organisation. The more is the
sales, the more is the profit.
2. Increasing sales means progress of the firm. If the sales fall down, it is
fatal, because sales are the life blood of the business, as the blood is to a
human body.
3. Consumers are the kings. Manufacturers produce goods for consumers.
They must be satisfied in the market which is full of competitors with
products for similar use. So suitable products are necessary, and for this
an organisation is necessary.
4. To move the products from the factory to the consumers, the sales
organisation is necessary— demand creation.
5. To handle the orders promptly i.e., from the stages of enquiry to order
at full satisfaction to consumers.
6. Collection of dues is also important. Several drops make an ocean; at
the same time milking cows should not be neglected.
7. To keep good public relations by redressing the complaints if any, and
to create a good image of the firm.

❖ Functions of a Sales Organisation:

Modem sales organisation is not only profit-oriented but also customer-
oriented.
The following are the important functions of a sales organisation:
1. Analysis of markets thoroughly, including product and market
research.
2. Adoption of a selfishly sound but defensible sales policy.

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 3. Accurate market or sales forecasting and planning the sales campaign,
based on relevant data.
4. Deciding about prices and terms of sales and pricing policies.
5. Packaging for the consumer wants a container which will satisfy his
desire for attractive appearance, keeping qualities, utility, and correct
price and many other factors.
6. Branding the product.
7. Deciding the channels of distribution.
8. Selection, training and control of salesmen and fixing their
remuneration.
9. Allocation of Territory and quota-setting.
10. Sales programmers and sales promotion activities.
11. Arranging for advertising and publicity.
12. Order preparation and office recording.
13. Preparation of customer’s record cards.
14. Scrutiny and recording of reports.
15. Study of statistical records and returns.
16. Maintenance of salesmen’s records.

❖ Structure of the Sales Organisation:

The following factors are to be taken into consideration while
designing the structure of a sales organisation:
1. Nature of the market
2. Sales policies of the enterprise
3. Nature of the product
4. Number of products
5. Availability of financial resources
6. Level of distribution system
7. Size of the company
8. Price of the product
9. Ability of the professionals
10. Position of competitors’ Products.

❖ Sales Management:
Sales management is concerned with mainly with the management of
selling function. The sales function in a business is a basic function. The
sales management represents one of the most important functional areas
of business management, and all the principles of general management
such as planning, organizing, directing, motivating, and controlling are
applied to sales management too for securing better business
performance, viz., reasonable profits through sales. Modem business is
consumer centred.

43
 The American Marketing Association has defined sales management as
“the planning, direction, and control of the personal selling activities of a
business unit, including recruiting, selecting, training, equipping,
assigning, rating, supervising, paying and motivating as these tasks apply
to the personal sales force.”

❖ Functions of Sales Management:

The general functions of sales management or marketing
management are as follows:
1. Sales planning and policies
2. Pricing policies and price fixing
3. Advertising and promotions
4. Control of sales force
5. Marketing research
6. Planning and control of sales
7. Management of distribution channels
8. Branding, packing and labelling
9. After sale service
10. Integration and co-ordination of all functions.

❖ The Field of Sales Management:

The field of sales management includes the following tasks:
1. Setting sales force objectives
2. Human resource planning
3. Recruitment and selection of salesmen
4. Training of sales personnel
5. Motivation
6. Compensation
7. Controlling the sales force
8. Organizing and supporting the work of salesman
9. Designing sales force objectives
10. Supervising and evaluating the sales force.

❖ SALES FORECASTING:
• Sales forecasting is an estimation of projected sales for a time period.
Simply speaking, the process of sales forecasting involves reviewing
performance, history of the product or service, and relates it to the
marketing and sales effort of the firm within the anticipated market
environment (economic, competitive, technological, public policy etc.)
and buyer behaviour.
• Sales forecasts are time span related and therefore are termed as, short
term forecast - covering time period of upto a year, medium team

44
 forecasts-for a time period of around five years. The exact time period for
which a forecast is developed is dependent on the product/ market
characteristics as well as the purpose for which it is developed and hence
may very from company to company. Notwithstanding thus the longer the
time span covered, the more qualitative will be the forecast, and the
shorter the time span covered, the more quantitative the forecast.
• Time series (trend fitting, moving average), corneations and regression,
customer/ dealer surveys and executive judgement are the most
commonly used methods for preparing sales forecasts. The selection of
the appropriate forecasting method(s) depends upon (i) its purpose (ii)
availability of reliable and relevant data and (iii) market conditions. For
increased usefulness, the overall sales forecasts should be broken down
by product, month, territory, geographical area, and segment wise as per
the needs of the company.

❖ MANAGING SALES FORECASTS

The pay off of sales forecasting lies in the accuracy of the forecasts made.
Since the attainment of sales forecasts require the deployment of
resources in its anticipation, the manager must do his best to make the
forecast come true. Evaluation of the approach and methods used for
sales forecasting as well as monitoring of the actual and its comparison
with the estimated performance form part of the regular activities of the
manager.

❖ WHAT TO DO WHEN SALES FORECASTS DIFFER?

Many a firms in order to minimise the error factor in sales forecasting,
use multiple experts and approaches. At times this results in varying
levels of sales forecasts under the circumstance, the manager may
examine the differing forecasts by :
• Probing into the methodology of sales forecasting adopted by different
experts.
• Looking into definition and scope of the terms used in the construction of
the
forecast.
• Pooling of wisdom of the experts and arriving at the most agreeable level
of forecast.
• Conducting retrospective-prospective analysis of the suggested levels of
sales forecasts using fine tuned historical data and executive judgement.
Experience brings out that the sales managers who have detailed market
knowledge, and their companies the comprehensive marketing
information system providing data on product, customer and segment
wise basis of their competitors sales, succeed in making more accurate
sales forecasts.

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❖ MONITORING THE SALES FORECAST
As the sales realize for the operating period these should be monitored at
a regular periodicity. The unfolding of market reality often creates the
need to adjust the sales forecast. Business prudence desires that in the
case of annual sales forecast, these be thoroughly reviewed at least on a
quarterly basis and if need be corrected too. A similar review on an
annual basis in the case of long-term forecast is felt necessary. In the
process of carrying out corrections in the sales forecast emphasis should
be laid on.diagnosing the causes warranting such corrections so that the
accuracy level of sales forecasts be improved. In any case a strong
justification must be made for modifying the sales forecast so that
suitable adjustment in the marketing and sales strategy be also carried out

❖ SALES FORECASTING FOR NEW PRODUCTS

Unlike the established products, forecasting of the sales for new products
is more difficult. Depending upon the degree of similarity/dissimilarity
with the existing products, sales forecast for new products are based on :
• Past records and experience
• Study of competing product's demand
• Market research findings Test market results
• Demand behaviour of substitute products arid rate of substitution.
In addition, sales curve of such a new product in foreign markets and its
analysis on a product life cycle basis provides meaningful insights.
In the case of a totally new product, a close watch on the actual sales
along with the experts opinion, lessen to some extent the otherwise
impossible task of developing reliable forecasts for such products.

❖ SALES QUOTAS - MEANING AND IMPORTANCE

A sales quota is a quantitative goal assigned to a sales unit relating to a
particular time period. A sales unit may be a sales person, territory,
branch office, region or distributor. Sales quotas are used to plan, control
and evaluate selling activities of a company. They provide a source of
motivation,' a basis for incentive compensation, standards for
performance evaluation of sales person and uncover the strengths and
weaknesses in the selling structure of the firm. For example, a company
manufacturing electronic office equipment discovered that it took twice
as long as to sell an electronic typewriter than to sell other similar
products in the product Iihe. Since the electronic typewriter was
considered more important by company, quotas on the electronic
typewriter were set for each sales person. The result was that a sales
person in a control group having a rigid electronic typewriter quota
outsold the uncontrolled quota group. This example shows that generally

46
 speaking sales persons are quota achievers and their motivation may fall
off if easy or no quotas are set for them to achieve.

❖ WHY QUOTAS?
Sales quotas serve several purposes. The principal purposes include.
Providing Goal and Incentives : Quotas provide sales persons, distributive
outlets and others engaged in the selling activities, goals and incentives to
achieve certain performance level. Many companies use quotas to provide their
salesforce the incentives of increasing their compensation through commissions
or a bonus if the quota is surpassed and/or recognised for superior performance.
Needless to mention, to be true motivators sales quotas, set should be perceived
as being realistic and attainable.
Controlling Sales Persons Activities: Quotas provide an opportunity to direct
and control the selling activities of sales persons. Sales persons are held
responsible for certain activities of customer per day, calling on new accounts,
giving a minimum number of demonstrations and realisation of company's
account. If the sales person fails to attain these quotas, the company can take
corrective action to rectify the mistake.
Evaluating Performance: Quotas enable the company to evaluate performance
of its sales person, territory or distributive network. Performance against quotas
also helps identify the strong and weak points of the sales persons.
Controlling the Selling Expenses: Quotas are also designed to keep selling
expenses within limits. Some companies reimburse sales expenses only upto a
certain percentage of sales quota. Other tie expenses to the sales person's
compensation in order to curb wasteful spending. Expense quota helps
companies to set profit quotas.
Making Effective Compensation Plan: Quotas play an important, role in the
company's sales compensation plan. Some Indian companies follow the practice
that their sales person will get commission only when they exceed their
assigned quotas. Companies may also use attainment of the quotas in full or in
part as the basis for calculating the bonus. If the sales person does not reach the
minimum desired quota, he/she will not be entitled for any bonus.

❖ HOW QUOTAS ARE SET?

Having understood the meaning. and usefulness of sales quotas let us now learn
how quotas are set.
There are four types of quotas :
i) Sales volume quota
ii) Financial quota
iii) Activities quota
iv) Combination of the above quotas.

47
These quotas along with the approach used for their determination are discussed
below :
1. Sales Volume Quotas: The most commonly used quotas are those based
on sales volume. This type of quotas are set for an individual sales person
geographical areas, product lines or distributive outlets or for any one or
more of these in combination. Sales volume quotas are also set to balance
the sales of slow moving products and fast moving products or between
various categories of customers per sales unit. The sales volume quotas
may be set in terms of units of product sales, or rupee sales or both on
overall as well as product wise basis. Some companies combine these two
and set quota on "Point" basis. Points are awarded on the attainment of a
certain specific level of sales in units and rupee terms for each
product/customer. For example : A company might consider Rs. 1000
equal to 1 point, Rs. 2000 equal to 2 points and so on. At the same time
company may award 3 points for unit sales of Product A and 5 points -
for unit sales Product B. Companies use this type of approach generally
because of problems faced in implementing either Rupee sales volume or
unit sales volume quota. Unit sales volume quotas are found useful in
market situations where the prices of the products fluctuate considerably
or when the unit price of the product is rather high. Rupee sales volume
quotas are found suitable in the case of sales force selling multiple
products to one or different types of customers.

I. Past Sales : One of the earliest methods of setting sales volume quotas is
to base them solely on past sales experience. The method in this case
would be to determine the percentage by which the company's market
share is expected to increase and then add this into last year's quota. For
example, .if a company expects an increase of 8 per cent this year then
the new quota for each marketing unit would be last year's quota plus 8
per cent or 108 per cent of last year's quota. This method assumes that-the
preceeding year was a typical year, and if not, it suffers from the
limitations of being based on unrealistic figures. An improved method is
to take the average of say past three years and then add to it to the
planned rate of growth.

II. Total Market Estimates: The other method is to derive sales quotas
from the total market size estimates made by the company for the year.
Two approaches are used to arrive at such market estimates. One
approach is to estimate the market size in an aggregate manner as per the
data available as well as the judgement of the executive at the head office.
The other is to build estimates based on projections made by the field
staff at each territory office of the companies. In either case the market

48
 estimates need moderation to be realistic as well as to match with the
company's sales objectives.

2. Financial Quotas: Financial quota§ are determined to attain desired net

profit as well as to control the sales expenses incurred.

I. Net Profit Quota : Net profit quotas are particularly useful in

multiproduct companies where different products contribute varying level
of profits. It emphasises on the sales force to make right use of their time.
The following figure clearly depicts a selling situation in which a sales
person optimally balance their time between high and low profit yielding
products.

II. Expense Quota : In order to make the salesforce conscious of the need to
keep selling costs within reasonable limits, some companies set quota for
expenses linked to different levels of sales attained by their salesforce.
And to ensure its conformity they even link compensation incentives to
keeping expenses within prescribed limits. Since sales are the result of the
selling tasks performed which vary across sales territories, it is not easy
to determine expense quotas as percentage of sales in a uniform manner.
Also very strict conformity to expense quota norms result in demotivation
of salesforce. As such expense. quota is generally used as a supplement to
other types of quotas.

3. Activity Quotas: Good performance in competitive markets requires the

salesforce to perform the sales as well as market development related
activities. The latter activities have long term implications on the
goodwill of the firm.To ensure that such important activities get
performed, some companies set quota for the salesforce in terms of the
various selling activities to be performed by them within a given
periodicity. Finally the company must set a target level of performance
for the sales persons.

4. Combination Quotas: Depending upon the nature of product market

selling tasks required to be performed as well as selling challenges facing
the company, some companies find it useful to set quotas in combination
of the two or three types discussed above. Rupee sales volume and net
profit quotas or unit sales volume and activity quota in a combined
manner are found in common use in a large number of consumer and
industrial products companies in India.

❖ ATTRIBUTES OF A GOOD SALES QUOTA PLAN

49
 Usually, the sales department is responsible for establishing the sales
quota, and no review or approval of a higher executive is needed. Within
the sales organisation, the task may rest with ` any of several executives,
depending on the size of the company, the degree of centralization in the
sales force management, and the method used to determine the quotas.
The chief sales executive may be responsible for setting the total
company quota, but the individual. breakdown may be delegated down
through the regional and branch district managers. Or territorial sales
potentials may be given to the branch or territory managers, and they set
the salesmen's quotas.
There are several characteristics of a well-designed quota structure. Many
of these attributes are the same attributes found in good compensation
plans, territorial designs, organisational structures and 'other aspects of
sales management.

Realistic attainability : If a quota is to do its intended job of spurring a man to

the efforts management wants, the goal must be realistically attainable. If it is
too high or out of reach, the salesmen may loose initiative.

Objective accuracy: Regardless of whether a firm is using volume, profit,

expense, or activity quotas, they should be related to potentials. Obviously,
executive judgement is also required, but it should not be the sole factor
considered. If the men are to have faith in the performance goal, they must be
convinced it was set impartially and based on factual, qualitative market
assessment.
Ease of understanding and administering: A quota must be simple and easy for
both management and the sales force to understand. A complex plan probably
will cause friction and make the men resentful and even suspicious. Also, from
management's point of view, the system should be economical and cost
effective, to administer.

Flexibility: No quota ordinarily is a good one unless there is adequate

flexibility in its operation. Particularly if the quota period is as long as one year,
management may have to make adjustment because of changes in market
conditions. At the same time, caution must be exercised to avoid unlimited
flexibility, which may result in confusion and destroy the ease with which the
system is understood.

Fairness: A good quota plan is fair to the men involved. As much as possible,
the work load imposed by quotas should be comparable, but this does not mean
that quotas must necessarily be equal for all men. Differences in potential,
competition, and salesmen's abilities exist and, therefore, the performance goals

50
may not be comparable by absolute measures. They can be. compared but only
in relative terms.

❖ What is Sales Budget?

A budget is a financial plan and tool of control. In a sales budget, resources are
allocated to achieve the sales forecast. It states what and how much each
salesperson will sell. It also spells out what and how much will be sold to the
different classes of customers.
A budget is an estimate of sales, either in units or value and the selling expenses
likely to be incurred while selling. Once the budget is accepted in terms of
estimated sales, expenses and profit figures, the actual results are measured and
compared against the budgeted figures. It is an instrument of planning that
shows how to spend money to achieve targeted sales.
A budget also anticipates a particular level of profit. Budgeting is a short-term
exercise that attempts to optimize business profits by accommodating customer-
service activities and incurring expenses to acquire new business.
For instance, to increase the sales volume by Rs. 2 lakh, sales management may
have to rope in new customers. The expense of appointing new customers is
also included in the budget.
It estimates how much sales are to be made and what expenses will be incurred
in the same. A proper budget provides a projection into the sales volume, selling
expenses, and profits of the company. Personal selling objectives, both
quantitative and qualitative, determine the sales-related marketing policies
which in turn form personal selling strategies.
The strategies are decided keeping in mind the two key decisions, i.e., kind of
sales personnel and size of sales personnel. All this together determines
the sales budgets and once the expenses have been estimated the sales force
management is undertaken.

❖ Purpose of Sales Budget

These are important Purpose of Sales Budget which is given below:
• Planning Tool
• Instrument of Coordination
• A Tool for Control

➢ Planning Tool
In order to achieve goals and objectives, the sales managers plan by
outlining essential costs to be incurred. This helps in profit planning and
acts as a guide for achieving objectives.

➢ Instrument of Coordination
The budget acts as an instrument of coordination. Selling is one of the
functions of marketing and needs support from the elements of the

51
 marketing mix. Budgets also help in integrating other functions of like
sales, finance, production, and purchase.

➢ A Tool for Control

A comparison between budgeted and actual costs result in the analysis of
factors causing variations and enables the sales manager to spot problem
areas or plan better for expected outcomes. Variance analysis helps in
improving insight of sales manager and enables to define and develop
realistic sales budget in the future with minimal variance.

❖ Methods of Sales Budgeting

These are important Methods of Sales Budgeting which is given below:
• Affordable Method
• Percentage of Sales Method
• Competitors Parity Method
• Objective and Task Method
• Zero Base Budgeting.

➢ Affordable Method
What is affordable? Many companies set the promotion budget at what
they think the company can afford. This method is used by firms dealing
with capital industrial goods. Also, companies having a small size of
operation make use of this meth

➢ Percentage of Sales Method

Most companies set their sales budget as a specified percentage of sales
(either current or anticipated). Mass selling goods and companies
dominated by finance are major users of this method.

➢ Competitors Parity Method

This method is used by large size companies facing tough competition. It
presumes knowledge of competitors’ activities and resource allocation.

➢ Objective and Task Method

This method calls upon marketers to develop their budgets by identifying
the objectives of the sales function and then ascertaining the selling and
related tasks to achieve objectives. Later the cost of each task activity is
calculated to arrive at the total budget. Adjustment to task or budgets can
be made.

➢ Zero Base Budgeting

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 A process in which sales budget for each year is initiated from zero base
thus justifying all expenditures and discarding all conventions and rules
of thumb. Its limitation is that it is a very elaborate and time-consuming
process. In practice, companies use a combination of these methods.

❖ What is Sales Control?

Sales control is one of the functions of sales management which ensures the
sales achievement and profit objectives of the company by coordinating
effectively and efficiently the different sales functions.
Goals of Sales control
• Optimize number of sales
• Maximize profit
• Control revenue

❖ Importance of Sales Control

Every business function needs a control mechanism. Sales management is a
broad field and consists of various aspects and functions. Like all other process
control set of procedures need to be established, performance should be
evaluated periodically and digression from the standards should be addressed
swiftly.

Sales control process can be executed either through Behavioral aspects like
sales efforts or by allocation of selling time or through cost aspects like
performance expenses and sales-function administration. Sales personnel need
to be trained sufficiently to maintain a consistent effort in sales and also
productivity of the sales person should be maintained.
Sales control doesn’t focus only on managerial action related to sales, it also
encompasses all activities which ensure the even flow of products or services
from the producer to the consumer.

❖ Types of Sales Control

Sales budget and sales programs are the basic available tools to control the
efforts. Other available tools are
1. Sales Budget

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2. Sales Programs
3. Sales Audit
4. Sales Analysis
The above tools can be used in identifying the strength and weakness of the
internal processes and opportunities and threats from the external environment.
Further it will help the management in locating the defect in the functioning of
the sales department and take corrective measures.

1.Sales Budget
Sales budget creates a overall constraint for the sales team to operate within.
Budget in terms of expenses and efforts spent can control the sales activities
well and align them with company's sales objectives and profit targets. A sales
team may be able to perform well and meet sales target but if the cost spent to
achieve the same is very high then the profit would be less. Hence companies
assign a sales budget for the sales activities.

2.Sales Programs
Sales program are a set of activities, training and best practices which a
company follows for performing sales activities. A sales program can train the
sales force well on the companies values so that the sales team follows them
when they go on field to sell the products and services. Through a program it
can be ensured that all the sales team members follow similar approach and
system to achieve it.

3.Sales Audit
Sales audit is the systematic and unbiased review of the basic objective and
policy of the selling function of an organization. Sales audits help in improving
the effectiveness of the sales arm of the organization. Audits normally examine
six aspects such as
• Objective of the company
• Internal policies
• Structure of the organization
• Sales methods
• Procedures
• Sales personnel

4.Sales Analysis
Sales analysis is the study of sales volume operations to find the sales and profit
trend. It helps in achieving better sales performance. It also provides insights on
the sales territories, type of customers and products.

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 Unit 4

❖ What is an advertisement?

An advertisement, otherwise known as an advert or ad, is generally considered a

public communication that promotes a product, service, brand or event. To
some the definition can be even broader than that, extending to any paid
communication designed to inform or influence.
If these definitions feel vague, it’s because they are – the truth is that
advertisements can be tricky to define, now more than ever. From bus shelters
to search engines to Instagram influencers, the field of advertising has never
been broader, deeper or more complex.
It’s important to note that advertising is not the same as marketing; it is rather a
subcategory of it. Advertising is a type of paid marketing that the advertiser
enjoys complete control over.

❖ Why are advertisements important?

Advertisements are important for businesses because they are the most direct
and proven way to reach potential customers. They can have an instant impact
on your business in a number of ways, including:

• Brand awareness: Advertising can make your target audience aware of

your existence, helping them take the first step into the sales funnel.

• Brand reputation: Carefully crafted messages can tell an audience what

your brand stands for and how you work. By sharing your mission,
philosophy, values and track record, you can use advertising to build an
enviable reputation.

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 • Corrections and apologies: Advertising can grant you the opportunity to
apologise for a slip-up or correct the record if you feel as though
something has been misrepresented.

• Sales: Last but not least, the overwhelming majority of ads are designed
to increase sales, whether by directly promoting a specific product,
service or deal or by any of the less direct methods listed above.

❖ 5 types of advertisement
The vague definition of advertising offered at the top is a consequence of the
variety of different forms ads come in and channels they’re delivered through.
• Print advertising: Print ads see ink printed on paper. Newspapers,
magazines, brochures, posters, flyers and direct mail are all examples of
print advertising.
• Broadcast advertising: In years gone by the term ‘broadcast advertising’
covered radio and TV, though these days the line between these formerly
analogue channels and digital streaming services is blurrier than ever.
• Outdoor advertising: Bus stops, billboards, blimps, banner planes, other
things that don’t start with ‘B’ – outdoor advertising treats the whole
world as an advertising stage.
• Product integration: Perhaps the most subtle form of advertising,
product integration sees products and brands included (and implicitly
promoted) in film, TV, Instagram, YouTube and other forms of media.
• Digital advertising: Over the last couple of decades digital advertising
has overtaken all the other forms listed above. In fact, it really deserves
its own section …

➢ The rise of digital advertising

This was perhaps the moment that digital advertising turned into the arms race
we see today. The effectiveness, affordability and immediacy of digital
advertising has seen it take over the marketing industry. Other forms of
advertising simply can’t compete.
Digital advertising can be thought of as any advertising served up via the screen
of your smartphone or computer. Unlike its print, broadcast and outdoor
cousins, digital advertising is uniquely interactive – the audience can click on an
advertisement to learn more about the brand or purchase the product.
The term ‘digital advertising’ covers a wealth of different marketing channels,
tools, tactics and mediums, so let’s take a look at four of the most common
digital advertisement examples.

❖ 4 types of digital advertising

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From YouTube pre-roll ads to podcast sponsorships, digital advertising comes
in seemingly endless forms. So instead of running through individual digital
advertisement types, let’s instead focus on the four main subcategories of digital
advertising.
It should be noted that this is far from a comprehensive list, but the four
channels below do form the foundational pillars of many digital marketing
strategies.

1. Display ads
Display ads are the digital ads comprised of imagery and text that you see as
you browse a website. The humble banner ad is an example of a display ad,
though they come in a number of different forms, such as pop-up ads,
flash/animated ads, interstitial ads, lightbox ads and expandable ads.
2. Social media ads
No segment of digital advertising has grown faster than social media
advertising, for one major reason: social media platforms have deep knowledge
of each of their users, which allows them to offer hyper-targeted advertising. If
you want to advertise exclusively to 40-something women who have one child
and are interested in softball, you can.
Social media ads include sponsored Twitter posts, Facebook carousel ads,
YouTube pre-roll ads, Instagram influencer product integrations and more.

3. Search engine ads

While the marketing strategy of search engine optimisation (SEO) will help you
to work your way up the search engine results page (SERP) for relevant search
terms, there’s a far quicker and easier way to reach the top spot – pay.
You might think that you’ve become blind to the ads that are served up at the
top of a Google search and that they, therefore, aren’t worth the money and
effort, but the beauty of Google Ads is that they are pay per click (PPC) – you
only pay if someone actually interacts with your ad! As such, they should form
a key pillar of any digital advertising strategy, but always alongside SEO
efforts.

4. Email marketing
It turns out that the oldest digital advertising campaign actually happened 16
years before the first banner ad. In 1978 Gary Thuerk sent out an email blast to
400 recipients. His company, Digital Equipment Corporation, reportedly made
$13 million from the campaign.
Almost half a century later email marketing remains as effective as
ever, earning $36 for every $1 spent. And in Square Marketing, you have a
solution that can make your email campaigns even more effective, by creating
and sending a campaign in minutes, and by using clever analytics to understand
what works, what doesn’t, and how you can improve.

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The basic principles of advertising are as follows:
• Visual Constancy
• Campaign Duration
• Recurring Taglines
• Uniform positioning
• Lucidity
• Identify a selling point
• Creating an effective flow

1.Visual Constancy:
A continuous visual presentation in front of the public or target customers
embeds into the long-term memory of all. Further, it creates a connection with
the target customers. It helps in moving the product related information from
short-term to long-term memory in the public minds.

2.Campaign Duration:
The duration of the campaign must be identified in the very early developmental
stage of the product before launching. It refers to determine the duration of
running the advertisement. The ads must stay fresh and quick to understand, the
longer the ad sustains the stale the impact grows among the customers,
consequently, people start losing interest. Although, changing the ads frequently
may disrupt the viewer’s ability to retain the information. So, basically, this
principle emphasizes quick reach and frequency of the advertisements.

3.Recurring taglines:
This is the most effective approach. The taglines build the connection between
the viewer and the seller.
For instance: Telecom company, Airtel has a tagline, ‘the fastest growing
network’.

4.Uniform positioning:
It refers to placing the product keeping in mind the growing competition. The
product or service must be frequently displayed. Instead of stressing over the
price, the focus should be on the exaggeration of the quality. Lacking in
consistency may make things disappear not only from the market but also from
the minds. The practice of uncertainty in the messages displayed through the
advertisement must be strictly watched upon. It may create a state of confusion
and build a wrong impression on the customer.

5.Lucidity:
A brief advertisement is much easier to comprehend than a complex one.
Overloaded information misleads and confuses the viewer. Efforts should be

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made to divert the customer towards the website, which can provide in-depth
information about the product. The longer the information is, the more speakers
will speak at fast speed and in less time. Ultimately, tunes out the viewer. The
brief, intact and simple message creates curiosity.

6.Identifying a selling point:

This is yet another important aspect of ads. Confusion may grow from selling
the product from different points.

7.Creating an effective flow:

The focus must be on attracting the viewer’s attention to the key points of the
advertisement. Often the viewers remember the last thing displayed thus,
platforms such as social media, email, etc. A viewer must be directed to the
website. The website will offer more product-related information and make it
easy for the customer to reach out on the purchase decision.

❖ Advantages and Disadvantages of Advertising

Everything you need to know about advantages and disadvantages advertising.
Advertising is defined as the paid, non-personal form of communication about
products or ideas by an identified sponsor through the mass media so as to
inform, persuade or influence the behaviour of the target audience.
Advertising is directed to a large number of people and not to one individual.
That is why we call it non-personal. Advertising is communication about
products or ideas. It may inform us about the features of iPod or new smart
phone or spell out the need to have a cancer check-up.

❖ Some of the advantages and disadvantages of advertising are:-

A. Advantages of Advertising –
1. Promotion of Sales
2. Expansion of Production
3. Enhances Goodwill
4. Large Turnover and Huge Profits
5. Information about Different Options and Comparative Prices
6. Creates Employment
7. Higher Standard of Living
B. Disadvantages of Advertising –
1. Adds to the Cost of Production and Product
2. Leads to Price War
3. Deceptive Advertising
4. Leads to Unequal Competition
5. Creates a Monopolistic Market
6. Promotes Unnecessary Consumption
7. Decline in Moral Values

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 ❖ Advantages and Disadvantages of Advertising

➢ Advantages of Advertising:
(i) From Viewpoint of Manufacturers:
A well-advertised product is easier to be sold by the salesman in the market. If a
brand is popular and well-known, people respond favourably to the salesman’s
efforts. It provides a support to salesmanship, as the audience understands the
product and its uses more clearly through the advertisement and the salesman’s
effort is reduced to convince the buyers.

(a) Increase in Sales:

The main object of the manufacturer in advertising his products is to promote
the sale of his products. Goods produced on a mass scale are marketed by the
method of mass persuasion through advertising.
Repetition of advertisements, the manufacturers are not only able to retain
existing markets but are also able to expand the markets both by attracting more
people to their products and also by suggesting new uses for them. Advertising
is a helping hand to selling.

(b) Supplementing Salesmanship:

It creates a ground for the efforts of the salesmen. When a salesman meets its
prospect, they have just to canvass for a product with which the consumer may
already have been familiarised, through advertisements. Therefore, the
salesman’s efforts are supplemented and his task is made easier by advertising.

(c) Lower Costs:

Sales turnover and encourage mass production of goods are enhanced by
advertising that results in large scale production, average cost of production
reduces and results in higher profits. At the same time, when the cost of
advertising and selling costs gets distributed over a larger volume of sales, the
average cost of selling also lowers down.

(d) Greater Dealer Interest:

Advertising creates demand by which every retailer gets an opportunity to share
with others. Hence, the retailers who deal in advertised goods are materially
assisted by advertising in the performance of their functions. The retailers have
not to bother much about pushing-up the sale of such products. Therefore, they
evidence more interest in advertised products.

(e) Quick Turnover and Smaller Inventories:

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A highly responsive market is created by well-organised advertisement
campaign thereby facilitating quick turnover of the goods. Resulting, in lower
inventories in relation to sales and being carried-on by the manufacturers.

(f) Steady Demand:

Seasonal fluctuations on demands for products are smoothened by advertising
generally the manufacturers tries to discover and advertise new possible uses of
which a seasonal product maybe put. The innovation of cold tea and cold coffee
for the use during summer has helped in increasing the demand for these
beverages even in that season. The same maybe said for refrigeration.

(ii) From Viewpoint of Consumers:

(a) Improvement in Quality:

Usually, goods are advertised under brand names. When a person is moved by
the advertisement to use the product, they proceeds on the hope that the contents
of the particular brand will be better than the other brands of the same goods.
When his experience confirms his expectation, a repeat order can be expected.
Or else, the sales may rise very high once but may drop down very low
subsequently when the consumer’s confidence in the quality of the product fails.

(b) Facility of Purchasing:

Purchasing becomes easy for the consumers after advertising. Generally, the re-
sale prices (prices at which the goods are to be sold by the retailers) are fixed
and advertised. Thus, advertising offers a definite and positive assurance to the
consumer that they will not be overcharged for the advertised product. The
consumer can make his purchases with utmost ease and confidence.

(c) Consumer’s Surplus:

The utility of given commodities is increased by advertising for many people. It
points-out and pays even more for certain products which appear to have higher
utility to them. If these products are available at the original lower prices, there
will naturally be a certain amount of consumer’s surplus in terms of increased
satisfaction or pleasure derived from these products.

(d) Education of Consumers:

Being an educational and dynamic principle, the prime objective of advertising
is to inform and educate the customers about new products, their features, prices
and uses. It also convinces them to adopt new ways of life, giving up their old
habits and inertia and have a better standard of living.

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(iii) From the Viewpoint of Middleman:

(a) Retail Price Maintenance becomes Possible:

The consumers are quite keen on getting quality products at stable prices over a
period of time. Each consumer has his or her own family budget where he or
she tries hard to match the expenditure to the disposable income for a socially
acceptable decent living.
In case the prices go on changing abruptly, these individual budgets are likely to
be distorted to such an extent that the consumers will have to think of
substitutes for the products they are enjoying at present.

(b) Acts as a Salesman:

What a travelling salesman does for this organisation is done by the advertising
at least cost. This is the reason that most of the retail organisations do not
employ large army of travelling salesman, rather they are willing to spend on
advertising which attracts consumers to the sores where the counter salesmen
cater to their needs.

(c) Ensures Quick Sales:

Every retailer having the stock of different producers needs a quick turnover.
By bringing the wide range of these products to the notice of the consumers,
advertising boosts up of sales.
Faster sales imply the specific advantages such as reduced capital look-up,
reduction in losses of holding stock over longer period, increased profits even
by reducing the profit margin per unit. Further, advertising gives much leeway
and freedom to better serve the needs of the consumers.

(iv) From the Viewpoint of Society:

(a) Change in Motivation:

Radically advertising has changed the basis of human motivation. While people
of earlier generations lived and worked mainly for bare necessities of life, the
modern generation works harder to supply itself with the luxuries and semi-
luxuries of life.

(b) Sustaining the Press:

For support and sustenance the newspapers, periodicals, journals, looks for
advertisers, press, look to advertisements. In the absence of income from
advertising, the newspapers have to be produced at a higher cost and may not be
able to keep themselves free from its competitors.

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(c) Encouragement to Artists:
Designing artists, writers to do creative work. They earn their living from
preparing advertisements.

(d) Encouragement to Research:

When manufacturers are assured of sufficient profits. They undertake research
and discover new products or new uses for existing products. Advertising puts
forward this assurance and thereby encouraging industrial research with all its
advantages.

(e) Glimpse of National Life:

A glimpse of national life is provided by national life.

➢ Disadvantages of Advertising:
Advertising too have its own limitations. In some case it’s being misused by
few people over looking their business interests.

➢ The main weaknesses of advertising are discussed below:

i. Deferred Revenue Expenditure:
It is a deferred revenue expenditure, as the results are not immediate. As
advertising occupies a substantial portion of the total budget of the organisation.
Hence, investing a large sum in it does not necessarily yield immediate results
thus limiting its utility.

ii. Misrepresentation of Facts:

A major drawback of advertising is misrepresentation of facts regarding
products and services. Advertisers usually misrepresent unreal/false benefits of
a product and make tall claims to excite people to indulge in actions leading to
their benefit, but opposed to consumer’s self-interest.

iii. Consumer’s Deficit:

Advertising creates desires as consumers have low purchasing power. It leads to
discontentment. Such discontent is obviously not very desirable from the point
of view of society, particularly if it affects a large majority of people. But it is
important if it acts as a spur to social change.

iv. Barriers to Entry:

Advertisements promote industrial concentration to a greater or lesser degree.
The extent of such concentration may vary with the character of the individual
trade, the advertisability of the product and the technical conditions of its
production. Although, studies on this subject are not conclusive. The evidence
of positive association between advertising and concentration is weaker than
can be expected.

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v. Wastage of National Resources:
It is objected that advertisement is that it is used to destroy the utility of goods
before the end of their normal period of usefulness. Now models of automobiles
with nominal improvements are, for example, advertised at such high pressure
that the old models have to be discarded long before they become useless, not
that merely, the most-advertised products are delicate, fragile, and brittle.

vi. Increased Cost:

It is much debated whether advertising induces additional cost upon a product
which the community has to pay. In a sense, it is true since expenses on it form
a part of the total cost of the product. But at the same time, it would be unjust to
infer that if the advertising costs were cut down the goods would necessarily be
cheaper. Advertising is, one of the items of costs but it is a cost which brings
savings in its wake on the distribution side.

vii. Product Proliferation:

Critics state that advertising encourages unnecessary product proliferation. As it
leads to the multiplication of products that are almost identical, resulting in
wastage of resources which could otherwise have been used to produce other
products.

viii. Multiplication of Needs:

Advertising compels people to buy things they do not need as it is human
instincts, to possess, to be recognized in the society, etc., are provoked by
advertiser in order to sell products. At times, various types of appeals are
advanced to arouse interest in the product. Sentiments and emotions are played
with to gain customers.

❖ What Is Advertising Budget?

An advertising budget is an estimate of a company's promotional expenditures

over a certain time period. More importantly, it is the money a company is
willing to set aside to accomplish its marketing objectives.

Key Takeaways
• An advertising budget is the amount of money set aside for purposes of
marketing and advertisements.
• The cost of advertising dollars must be weighed against the potential
recognized revenues that those dollars will generate.
• Demographic research and customer segmentation can create profiles to
help optimize the returns to advertising spending.

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Understanding Advertising Budget
An advertising budget is part of a company's overall sales or marketing budget
that can be viewed as an investment in a company's growth. The best
advertising budgets—and campaigns—focus on customers' needs and problems
and on providing solutions to these issues, not company problems such as an
overstock reduction.
When creating an advertising budget, a company must weigh the value of
spending an advertising dollar against the value of that dollar as
recognized revenue. Before deciding on a specific amount, companies should
make certain determinations to ensure that the advertising budget is in line with
their promotional and marketing goals:
• The target consumer — Knowing the consumer and having
their demographic profile can help guide advertising spend.
• Best media type for the target consumer — Mobile or internet
advertising, via social media, may be the answer, although traditional
media, such as print, television, and radio may be best for a given
product, market, or target consumer.
• Right approach for the target consumer — Depending on the product or
service, consider if appealing to the consumer's emotions or intelligence
is a suitable strategy.
• Expected profit from each dollar of advertising spending — This may be
the most important question to answer, as well as the most difficult.
The best advertising budgets—and campaigns—focus on customers' needs and
solving their problems, not company problems such as an overstock reduction.

❖ Advertising Budget Levels

Companies can determine their advertising budget levels in several different
ways, each of which has its positives and negatives:
1. Spend as much as possible — This strategy, which sets aside just enough
money to fund operations, is popular with startups that see a positive
return on investment on their advertising spend. The key is anticipating
when the strategy will start showing diminishing returns and knowing
when to switch strategies.
2. Allocate a percentage of sales — This is as simple as allocating a specific
percentage based on the previous year's total gross sales or average sales.
It is common for a business to spend 2% to 5% of annual revenues on
advertising. This strategy is simple and safe but is based on past
performance and may not be the most flexible choice for a changing
marketplace. It also assumes that sales are directly linked to advertising.
3. Spend what the competition spends — This is as simple as adhering to
the industry average for advertising costs. Of course, no market is exactly
the same and such a strategy may not be sufficiently flexible.

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 4. Budget based on goals and tasks — This strategy, wherein you determine
the objectives and the resources needed to achieve them, has pros and
cons. On the upside, this can be the most targeted method of budgeting
and the most effective. On the downside, it can be expensive and risky.

Unit 5

❖ Why is advertising in the media important?

Advertising in the media is crucial for every brand. Each channel is an
intermediary between a brand and its customers. Finding a perfect channel
allows brands to present their product successfully, communicate their value,
and maintain trustful relationships with the target audience.
With the correct channel and well-thought-out advertising message, companies
build brand awareness, create buzz around their brand, showcase and
demonstrate the benefits of their products, increase their sales volume and
revenue, and collect clients’ personal information that allows them to craft
highly relevant and personalized offers.
To reach these goals, you need to choose the best channel or a mix for your
brand. So, let’s discover the types.

❖ Types of Advertising Media

We’ll divide all advertising media types into online and offline channels.
Offline advertising media include the following channels:
• newspaper advertising;
• TV advertising;
• radio advertising;
• leaflets and flyers;
• brochures;
• posters;
• direct mail;
• business cards;

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 • different types of guerrilla marketing (ambush marketing, ambient
marketing, undercover marketing, experiential marketing).
Online advertising media offers a wide choice of channels which include the
following ones:
• social media;
• email marketing;
• PPC advertising;
• chatbots;
• SMS;
• web push notifications;
• podcasts;
• landing pages;
• contextual advertising;
• video marketing;
Big brands often combine these channels to better approach each customer.
Such a mix is called integrated marketing communications. This strategy allows
companies to reinforce their marketing efforts and ensure the best user
experience.

❖ What is Advertising Media?

Advertising media refers to the various media channels through which
advertising is done. Advertising media is used for showcasing promotional
content which communicated in various forms such as text, speech, images,
videos using TV, radio, online, outdoor etc. Basically they are channels through
which companies can advertise their products and services to reach to
customers.
In this article:
• Importance of Advertising media
• Advertising media selection
• Types of advertising media
• Measuring impact of advertising media

Importance of Advertising media

Advertising media plays a pivotal role in business and marketing for companies.
There are many companies who offer products and services to customers.
However, it is impossible for every customer to know about every brand or
product. This is why companies advertise and use advertising media to reach to
customers, and to increase their market share.
Depending upon the customer demographics, advertising budget, targets of the
company, advertising objectives etc., companies can choose the type of media
they want and they can do an advertising campaign. This helps to create a buzz
about the brand, showcase the product and service utilities to the customer and
build a strong brand.

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Using all media channels is often referred to an integrated marketing
communications and helps a to build a brand using 360 Degree branding.

❖ Advertising media selection

For companies, it is important to have a clear cut plan in the selection of
advertising media. Some steps followed in advertising media selection are:
1. The objective of the company is analyzed as to what product and to which
customers it is to be advertised.
2. The next stage is to have a complete understanding about the customer
demographics who are to be targeted.
3. After that, depending upon the type of product, type of customers, the
advertising budget set, companies can choose from the various types of
advertising media. Advertising media should be chosen on the fact which gives
maximum return on investment. Companies should spend minimum on
advertising, reach out to as many people as they can and which should convert
into substantial sales to give profit to the company.
4.Over a period of time, this processing of selecting the appropriate advertising
media can be repeated for increasing cost benefit to the company.

❖ Types of advertising media

Advertising media is an important domain in business and advertising. With the
passage of time, there have been several ways in which ads are being showcased
and can be communicated to customers.
There are different types of advertising media present. Depending upon various
parameters like budget, reach, customer preferences etc. companies can choose
the required advertising media and help boost their brand.
Some of the most important types of advertising media are:

1. Broadcast media
TV and radio are two of the most important advertising media known as
broadcast media.
There are 2 types of broadcast media which can be considered here:

a. Television
Televisions have become a very important tool to advertise for companies.
Companies can targets serials, reality shows, sports events, live events etc.
which are showcased on TV's and understand the demographics of the people
watching the TV. TV channels are anyways classified as news, sports,
knowledge, entertainment, movies, kids etc. This helps advertisers to pick and
choose the channel. Thus TV is one of the most widely used advertising media
in the world. Advertising slots are sold by broadcasting companies and channels
based in popularity of TV shows, TRPs etc.

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b. Radio
As a tool for marketing and advertising, radio is the most cost effective tool
which a customer can have. Since radios have are high penetration and are easy
for customers to buy, they are a good tool for advertising. Radios enable
companies to reach out to a wide range of customers. Since radio cater to the
needs of a particular city or region, it is a good way to advertise based on
customers selected from geographic segmentation. Thus, radio is one of the
most effective tools as advertising media.

2. Print Media
Advertising media like newspapers, magazines, leaflets, brochures, billboards,
signages, direct mail and other print publications come under print media. With
the massive reach of print media, it became a popular tool for advertising. Print
media caters to a regional audience and is published in different languages.
Hence, print media can cater to a niche audience as compared to broadcast
advertising media tools like TV or radio.

3. Online Media
With the consistent growth in internet penetration, companies have started using
online media for promotion through advertising. People are connected to the
internet through social media, website browsing etc. This gives an opportunity
to companies to use this advertising media and cater to customers using online
advertising. Online ads, blogs, content advertising, affiliate marketing etc. are
all done using online as an advertising media.

4. Outdoor Media
Another popular form of advertising is using outdoor hoardings, billboards,
OOH (out of home) media etc. Outdoor advertising it basically useful in
capturing those customers who are travelling from one place to another.
This gives an opportunity to companies to use outdoor advertising media to
create brand awareness by putting large bill boards and hoardings above
buildings, near streets etc. to give maximum visibility.

5. Mobile
With the increasing penetration and usage of mobile phones, mobile advertising
has become a critical aspect for every business. Mobile as an advertising media
helps to reach out to customer by promoting messages through SMS, social
media chat groups etc.
Online and mobile media are also overlapping at times as websites can be
accessible both through desktop, laptop and smartphones.

6. Specialty Media

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These consist of items that are given away to the consumer on which the name
of the company or brand is printed so that more people get to know about it. For
example- carry bags, membership cards, free merchandise like caps or bags,
etc.
These type of advertising media are more niche and have a narrow reach as
compared to the above mentioned media.

7. Other forms
Apart from the ones discussed above, advertising can be done through transit
signs i.e. the small posters that we see on trains or buses, electronic billboards,
etc.
Some ads can be advertised before the movies in cinema halls as well, where it
can reach out to a large group of similar audience in terms of demography or
geography.

❖ Measuring impact of advertising media

For every type of advertising media, there are different parameters based on
which they can be measured:
1. For a print or a TV/radio ad, a phone number or email can be given for
customers to contact the company if they want, and through the number of
people who have tried to contact, we can measure the impact of the ad.
2. For an internet ad which is placed on different website homepage, if the
company or brand has an online website too, the number of clicks which direct
the customer to the company website measures the impact of the ad. But if the
company does not have a website, contact information can be displayed on the
banner as in the case of print ads, and the impact can be measured similarly.
In general, feedback devices like coupons, toll-free numbers, or feedback
registers in shops can estimate the impact of advertising media.

❖ Techniques to Measure Advertising Effectiveness

There are different tests and several techniques in each of the test to evaluate
advertising effectiveness. Test depends on the aspects to be evaluated. Based on
Philip Kotler’s views, let us first discuss classification of tests (various ways or
approaches) to evaluate advertising effectiveness.

1. Pre-test and Post Test:

Pre-test implies testing advertising message before it is sent to specific media.
Post test implies testing impact of advertising message after it is published in
any of the media.

2. Communication and Sales Effect Test:

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Communication test measures communicability (ability to communicate) of the
message. Whereas sales-effect test measures advertising impact on sales
volume.

3. Laboratory and Field Test:

Clearly, a laboratory test is conducted in a controlled environment in a limited
scale. Respondents are invited in a laboratory to state their response. Quite
opposite, a field test is conducted in original setting, artificial climate is not
created. It is similar as conducting survey to measure what customers think
about company’s advertisement.

4. Experimental and Survey Test:

Experimental test involves testing advertising effect by conducting test by
manipulating independent variable (i.e., advertising efforts) and measuring the
effect of the manipulation on other dependent variables like sales, profits,
consumer satisfaction, etc. Experimental test may be laboratory or field test.
Survey test involved knowing consumers’ view’s through a survey method.
5. Message and Media Effect Test:
While message test involves measuring clarity, contents, believability, action
ability, etc., of the message, the media test measures effectiveness/ suitability of
one or more media.
Mostly, a company is interested to measure advertisement’s communication
effect and sales effect. Therefore, it is worthwhile to discuss communication
and sales effect test.

Communication and Sales Effect Test:

Among several tests, the communication test and the sales effect test are more
relevant because success of advertising campaign depends on how far
advertising has influenced knowledge, attitudes and preference of the target
customers. In the same way, a sales volume is the ultimate aim of all marketing
efforts (including advertising). Advertising must increase sales. Therefore,
evaluation of advertising effectiveness, in most cases, consists of evaluating
communication test and sales effect test.

❖ Methods for Communication Effect Test:

Communication effect test seeks to determine whether advertisement is capable
to communicate effectively.
Following methods are used:

1. Direct Rating Test:

In this method, consumers are asked to rate/rank alternative advertisements.
They are exposed to different ads and are requested to rate them. Consumers

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can consider various criteria to rate the advertisement, like message contents,
message clarity, coordination, and overall impression.

2. Recall Test:
It measures the retention value of ad message. The consumers are asked to listen
and/or view the particular advertisement. They are then asked to recall the same.
The amount of contents and message they recall determines effectiveness of
advertisement.

3. Portfolio Test:
Here, the consumers are asked to view and/or listen to a portfolio of
advertisements. They are given as much time as they need. They are then asked
to recall all the ads and their contents. Their recall level indicates an
advertisement’s ability to affect consumers’ knowledge and arouse interest.

4. Laboratory Test:
The test is conducted in laboratory. Necessary equipment’s are used to measure
consumers’ physical reactions in terms of heartbeat, blood pressure,
perspiration, etc., to an ad.

Methods Sales Effect Test:

While the communication effect test measures communicating ability of the ad,
the sales affect test measures ad’s ability to influence sales. Ad must affect sales
positively. In fact, advertising’s sales effect is difficult to test because sales are
influenced by many factors besides advertising, including product’s features,
price, availability, and competition.

Following two methods are used:

1. Historical Test:
The test involves correlating the past sales to the past advertising expenditures
using advance statistical techniques. The results can reveal how far
advertisement was effective in generating or increasing sales. The test can be
used for different products, territories and ad media, or in general.

2. Experimental Test:
Experiment is conducted to assess impact of advertisement on sales. Instead of
spending the same per cent of sales for advertisement in all territories or
products, a company spends different percentage of sales for advertisement.

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Company can easily judge whether high-spending territories have resulted in
increasing sales and vice-versa.

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