Copyright 2006 by The McGraw-Hill Companies, Inc.

McGraw-Hill/Irwin
 Chapter 4

Organizing the
Sales Effort

McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
 Learning Objectives
• Identify the purposes of sales organization.
• Understand the different horizontal
organizational structures of a sales force.
• Outline the major issues in key account and
team selling.
• Discuss key vertical structure issues in sales
organizations.
• Identify important issues in starting a new sales
force from the ground up.

McGraw-Hill/Irwin 4-3 Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
 Importance of Sales Organization Decisions

• Organizing the activities and management of the

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

McGraw-Hill/Irwin 4-4 Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
 Purposes of Sales Organization
• Activities should be divided and arranged in
such a way the firm can benefit from the
specialization of labor.
• The organizational structures should provide for
stability and continuity in the firm’s selling efforts.
• The structure should provide for the coordination
of activities assigned to different persons in the
sales force and different departments in the firm.

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

McGraw-Hill/Irwin 4-6 Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
 Division and Specialization of Labor
• Line and staff – most common design
• Concerns
– What specific functions should be assigned to
staff?
– How can staff activities be integrated with line
sales manager activities?
– Should staff activities be performed in-house
or outsourced to independent contractors?

McGraw-Hill/Irwin 4-7 Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
 Organize for Stability and
Continuity
• Organize activities without regard to the
talents or preferences of current
employees.
• People can be trained or recruited to fill
positions.
• The same activities will be carried out at
the same positions within the firm even if
designated individuals receive promotions
or leave.

McGraw-Hill/Irwin 4-8 Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
 Coordination and Integration
• The more an organization divides tasks
among specialists, the more difficult
integrating those tasks becomes.
Issues:
• Sales force activities must be integrated
with customer needs.
• Selling activities must be coordinated with
other departments.
• Tasks must be integrated.

McGraw-Hill/Irwin 4-9 Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
 Outsourcing the Sales Force
Manufacturer’s Representatives
– intermediaries who sell part of the output of
their principals.
– Take neither ownership nor physical
possession of the goods they sell.
– Cover a specific territory and specialize in a
limited range of complementary products.

McGraw-Hill/Irwin 4-10 Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
 Outsourcing the Sales Force
Advantages of Manufacturer’s Reps
– Many established contacts and prospects
– Familiarity with the technical nature and
applications of specialized products
– The ability to keep expenses low by spreading
selling costs
– They appear as a variable cost item on their
principals’ income statement

McGraw-Hill/Irwin 4-11 Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
 Outsourcing the Sales Force
Six C’s of finding the right rep
1. Compatible lines
2. Compatible territories
3. Compatible customers
4. Credibility of the rep
5. Capabilities
6. Credits

Source: Dan Hanover, “Independents Day,” Sales & Marketing Management, April 2000, pp. 65–68.
McGraw-Hill/Irwin 4-12 Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
 Outsourcing the Sales Force
Selling Agents
– Intermediaries who do not take title or
possession of the goods they sell
– Compensated by commissions from their
principals
– Have broad authority by their principals to
modify prices and terms of sale
– Actively shape the manufacturer’s promotional
and sales programs

McGraw-Hill/Irwin 4-13 Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
 Considerations for Outsourcing the
Sales Force

• Economic Criteria
• Control
• Transactions costs
• Strategic Flexibility

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McGraw-Hill/Irwin 4-15 Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
 Common Bases for Structuring the
Sales Effort

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

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

McGraw-Hill/Irwin 4-17 Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
 Geographic Organization
Advantages Disadvantages
• Tends to achieve • It does not provide
lowest costs any benefits
• Travel time and associated with the
expenses are specialization of
minimized. labor.
• Sales administration
and overhead costs
are kept low.

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McGraw-Hill/Irwin 4-19 Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
 Product Organization
A separate sales force for each product (or category) in the line.

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

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McGraw-Hill/Irwin 4-21 Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
 Organizing by Customer Type or Markets
Organizing a sales force by customer type is a natural
extension of the marketing concept and a strategy of
market segmentation.

Advantages Disadvantages
• Better understanding of • Possible higher selling
customer needs and administrative costs
• Increased familiarity with • Duplication of effort
certain businesses
• Increased control over
the allocation of the
selling effort

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McGraw-Hill/Irwin 4-23 Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
 Organizing by Selling Function
• Different salespeople specialize in
performing different selling functions – e.g.
prospecting and developing new accounts
versus maintaining and servicing existing
customers.

McGraw-Hill/Irwin 4-24 Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
 Role of Telemarketing
• Prospecting for and qualifying potential
new accounts
• Servicing existing accounts quickly when
unexpected problems arise
• Seeking repeat purchases from existing
accounts that cannot be covered efficiently
in person
• Gaining quicker communication of
newsworthy developments

McGraw-Hill/Irwin 4-25 Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
 National and Key Accounts
• Organizational approach to deliver customer
service necessary to attract and maintain large
and important customers.

• Sales execs must be able to . . .

– be business managers capable of managing key
accounts
– customize products and services
– plan and implement key account business plans

McGraw-Hill/Irwin 4-26 Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
 Organizing for National and Key
Accounts
• Assign key accounts to top sales
executives
• Create separate corporate division
• Create a separate sales force to handle
major accounts

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

McGraw-Hill/Irwin 4-28 Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
 Team Selling
• A selling center brings together individuals
from around the organization
• A matrix organization employs direct-
reporting salespeople who support internal
consultants with specialized expertise

McGraw-Hill/Irwin 4-29 Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
 Alternative Organizations
• Multi level selling –sales team consists of
personnel from various managerial levels
who call on their counterparts in the
buying organization
• Co-Marketing Alliances – develop
marketing and sales programs to sell
integrated systems directly to the ultimate
customer

McGraw-Hill/Irwin 4-30 Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
 Logistical Alliances and
Computerized Ordering
• From the customer point of view,
computerized ordering is
– Convenient,
– Flexible and
– Less time consuming
• How will computerized reorder systems
change the role of the sales force?

McGraw-Hill/Irwin 4-31 Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
 Vertical Structure of Sales
Organizations

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

McGraw-Hill/Irwin 4-32 Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
 Vertical Sales Organization
• Generally, span of control should be
smaller and number of levels of managers
larger when:
– The sales task is complex
– The profit impact of each salesperson’s
performance is high
– The salespeople in the organization are well
paid and professional

McGraw-Hill/Irwin 4-33 Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
 Vertical Sales Organization
• Span of control should be smaller at
higher levels in the sales organization
• Other issues:
– How much authority should each manager be
given?
– At what level of sales management should
authority for different decisions lay?

McGraw-Hill/Irwin 4-34 Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
 Building Blocks for New Sales
Force Startup
1. Start with a strategy
2. Appoint an expansion team
3. Leverage existing strengths
4. Go to the press
5. Avoid compensation snafus
6. Provide support

Sales managers assigned to create a new sales

force can employ “best practices”

McGraw-Hill/Irwin 4-35 Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
 Key Terms

• division and specialization of labor •organization by selling function

• line organization •telemarketing
• line and staff organization •national or key accounts
• outsourcing the sales force •team selling
• manufacturers’ representatives •selling center
• selling agents •matrix organization
• transaction cost analysis (TCA) •multilevel selling
• geographic organization •co-marketing alliances
• product organization •logistical alliances
• organization by customer type •span of control

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 Mark W. Johnston Greg W. Marshall
Rollins College Rollins College
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