Professional Documents
Culture Documents
MBA-DS-MK-404:
SALES &
DISTRIBUTION
MANAGEMENT
Parameters Weightage
Course 1. Get acquainted with the theory and practice of sales and
distribution management.
Outcomes
2. Develop an understanding of how to carry- out a sales
process from start to finish to get results
Unit II Unit V
2.1Designing and Administering Compensation Plans 5.1 Marketing Channel Policies and Legal Issues
Syllabus
2.2 Supervision of Salesmen; Motivating Sales 5.2 Information System and Channel
Personnel
Management
2.3 Sales Meetings and Sales Contests
5.3 Assessing Performance of Marketing Channels
2.4 Designing Territories and Allocating Sales Efforts
2.5Case study 2 5.4 International Aspects of Selling and
Unit III Distribution
3.1 Objectives and Quotas for Sales Personnel 5.5 Case Study 5
3.2 Developing and Managing Sales Evaluation
Programme
Sales Cost and Cost Analysis
3.3 An Overview of Marketing Channels- Structure,
Functions and Relationships
3.4 Case Study 3
1. R.S Still, W.E. Cundiff and N.A.P. Govoni, 2010, Sales
Management: Decisions, Strategies and Cases, Prentice-
Hall
2. L. Stern, A.I.E. Ansary and A.T. Coughlan, 2005, Marketing
Channels, Prentice-Hall
3. D.J. Bowersox and D. Closs, 2013, Logistical Management:
Recommended The Integrated Supply Chain Process, Tata Mc Graw Hill
Reading
Unit 1: Sales
Management
1.1 Nature and Scope of Sales
Management
1.2 Setting and Formulating
Personal Selling Objectives
1.3 Recruiting and Selecting
Sales Personnel
1.4 Developing and Conducting
Sales Training Programmes
1.1 Nature and
Scope of Sales
Management
Another definition: “The process of planning,
directing, and controlling of personal selling,
including recruiting, selecting, equipping,
assigning, supervising, paying, and motivating
Introduction to the personal sales force.
Sales
Management Marketing function splits into sales and other
functions like market research, advertising,
physical distribution
1. Overcoming Negative reply NO
2. Building Network
3. Raising right Questions
Significance of 4. Developing Listening Skills
Career in Sales
5. Enhancing Persuasion Skills
6. You are selling in fact in your whole life
7. Gain the skills most CEOs posses
Its integration with marketing management
Head-
Marketing
Nature of
Sales
Management Manager-
Promotion
Manager –
Market
Research
Manager –
Sales
Manager –
Market
Logistics
Manager –
Customer
Service
• Relationship Selling
Transactional Value – added Collaborative /
Relationship / Relationship / Partnering
Selling Selling Relationship /
Selling
Sales Position Brief Description Examples
• Delivery salesperson • Delivery of products to • Milk, newspapers to
business customers or households
households.
Varying • Also takes orders. • Soft drinks, bread to retail
stores.
Sales • Order
selling)
taker (Response • Inside order taker • Behind counter in a garment
shop
Responsibilit • Telemarketing salesperson • Pharma products’ orders from
takes orders over telephone nursing homes
ies / • Outside order taker. Also • Food, clothing products’
performs other tasks orders from retailers
Sales Marketing
Psychology in
If a sales person makes a presentation, the prospect
Selling
may or may not buy
The above “buyer behaviour model” does not tell us
the reasons of buying or not buying
To understand the psychological aspects of selling or
buying, salespeople should study consumer or buyer
behaviour, including buying process and situations
Five – stage model for household Eight – stage model for business
customers buyers
1. Problem / need recognition 1. Problem / need recognition
2. Characteristics and quantity
Buying determination
3. Specification development
Process of
Consumers 2. Information search / collection 4. Supplier search and
qualification
and 5. Obtain and analyse supplier
Business proposals
Buyers 3. Evaluate alternatives 6. Evaluation and selection of
suppliers
4. Purchase decision 7. Selection of purchase order
routine
5. Post – purchase behaviour 8. Performance feedback and
post-purchase evaluation
Household customers Business Buyers
• Routine decision-making • New task / New purchase
and Sales-
related Major reasons for giving above information /
Marketing knowledge through training programmes to
salespeople are:
Policies • increase their self-confidence
• Meet customers’ expectations
• Increase sales
• Overcome competition
1.3 Recruiting
and Selecting
Sales
Personnel
Size of the Salesforce
Physical Examination
Objective is to find a physical problem that may prevent job
performance of an applicant
Most companies want their prospective employees to undergo
physical examination
Increasing number of firms ask applicant to complete the health
information form without seeing a medical doctor
Hiring Stage
After completing selection process, a list of candidates to be hired is
made
In hiring stage, two activities are performed:
(1) The company making the job offer
(2) Persuading the applicant to accept it
Socialisation Stage
It is the process through which new salespeople learn values, norms,
attitudes, and behaviour of people working in the firm
Socialisation process starts before the new salesperson accepts the
job offer and continues until the person is assimilated into the
company culture
Assimilation is the second stage of socialisation process
Companies have this process, in order to retain new salespeople
1.4 Developing
and Conducting
Sales Training
Programmes
Sales Training
2.1Designing and
Administering Compensation
Plans
2.2 Supervision of Salesmen;
Motivating Sales Personnel
2.3 Sales Meetings and Sales
Contests
2.4 Designing Territories and
Allocating Sales Efforts
2.1Designing
and
Administering
Compensation
Plans
Compensating the Salesforce
A good compensation plan should consider objectives from the
company’s and salespeople’s viewpoint
Objectives of compensation plan from the company’s viewpoint
• To attract, retain, and motivate competent salespeople
• To control salespeople’s activities
• To be competitive, yet economical: It is difficult to balance
these two objectives
• To be flexible to adapt to new products, changing markets,
and differing territory sales potentials
Objectives of Compensation Plan from Salesperson’s
Viewpoint
To have both regular and incentive income
• Regular income by fixed salary to take care of living
expenses
• Incentive income for above average performance
It means the average pay or money earned per year (or month)
It is important to decide levels of pay for all sales positions
It is decided based on the following factors:
• Levels of pay for similar positions in the industry
• Levels of pay for comparable jobs in the company
• Education, experience, and skills required to do sales job
• Cost of living in different metros and cities
Annual average pay levels vary between industries, within the same
industry, and sometimes within the company
Firms decide a range of average pay, instead of a specific pay
Salespeople earn pay depending on their and company performance
Develop the Compensation Mix
Widely used elements of compensation mix are: (1) salaries,
(2) commissions, (3) bonuses, (4) fringe benefits (or
perquisites)
Expense allowances or reimbursements like travel, lodging,
etc are not included
Basic types of compensation plans are:
• Straight salary
• Straight commission
• Combination of salary, commission, and / or bonus
68 percent companies use combination plan and balance 32
percent firms use straight salary or straight commission
We shall briefly examine above compensation plans
Straight – Salary Plan
Characteristics:
• 100 percent compensation is salary, which is a fixed component
• No concern for sales performance or salesperson’s efforts
• This plan is suitable for sales trainees, missionary salespeople, and
when a company wants to introduce a new product or enter a new
territory
Advantages:
• Salespeople get secured income to cover living expenses
• Salespeople willing to perform non-selling activities like payment
collection, report writing
• Simple to administer
Disadvantages:
• No financial incentive to salespeople for more efforts and better
performance. Hence, superior performance may not be achieved
• May be a burden for new and loss-making firms
Straight – Commission (or Commission Only) Plan
Characteristics:
• It is opposite of straight-salary plan
• Most popular commission base is sales volume or profitability
• Commission rate is a percentage of sales or gross profit
• This plan is generally used by real estate, insurance, and direct-
sales (or network marketing) industries
Advantages:
• Strong financial incentive attracts high performance, removes
ineffective salespeople and improves results
• Controls selling costs and requires less supervision
Disadvantages:
• Focus is on sales and not on customer relationship
• Salespeople may pay less attention to non-selling activities
Combination Plan
Characteristics:
• Combines straight salary & straight commission plan
• Four types of combination plans used by companies:
1) Salary plus commission: suitable for getting improved sales
and customer service
2) Salary plus bonus: a bonus is a lumpsum, single payment, for
achieving short-term objectives. This plan is used for
rewarding team performance
3) Salary plus commission plus bonus: suitable for increasing
sales, controlling salesforce activities, and achieving short-
term goals. Also suitable for selling seasonal products like fans
4) Commission plus bonus: Not popular. Used for team selling
activities for selling to major customers
Combination Plan (Continued)
Advantages:
• Flexible to reward and control salesforce activities
• Security for living costs and incentives for superior performance
for salespeople
• Rewards specific sales performance
• Different plans for different sales positions / jobs
Disadvantages:
• Complex and difficult to administer
• May not achieve objectives if not properly planned,
implemented and understood
Indirect payment plan, also called fringe benefits or perquisites, help
in attracting and retaining people, but have now come under
government tax in India
Pretest, Administer, and Evaluate Compensation Plan
Pretesting the new / proposed Compensation Plan:
• Companies pretest a new (or proposed) plan, before adoption
• Either it is simulated on a computer, or pretested at one / more
branches for 6-12 months
• It should involve all concerned people
Administering the new compensation plan
• Announce the plan in advance
• Explain the new plan and reasons for changing the previous plan
• Outsource administration if plans are changed frequently
Evaluating the new compensation plan
• Find if objectives of the plan are achieved
• Some companies audit compensation plans
2.2 Supervision
of Salesmen;
Motivating
Sales Personnel
Motivating the Salesforce
Base C
(B) 1
B
B
C C C C
5 4 3 2
Case study 3
Sales Quotas
What are Sales Quotas?
• Sales quotas are sales goals or targets set by a company for its
marketing / sales units for a time period
3.1 Objectives • Marketing / sales units are regions, branches, territories,
and Quotas salespeople, and intermediaries
for Sales • Generally, company sales budget is broken down to sales quotas
for various marketing units
Personnel
Objectives of Sales Quotas
• To use quotas as performance standards or performance goals
• To control performance
• To motivate people by linking quotas to compensation plans
• To identify strengths and weaknesses of the company
Types of Quotas
These are set when salespeople perform both selling and non-
selling activities
Objective is to direct salespeople to carry out important
activities
For effective implementation, activity quotas are combined
with sales volume and financial quotas
E.G. Calling on high potential customers, payment collection
from defaulting customers
Combination Quotas
Used when companies want to control salesforce performance on key
selling and non-selling activities
Focus on a few types of quotas, to avoid confusing salespeople. An
example:
Type of Quota Quota Actual Percen Weight Percent
t (Importa Quota x
Quota nce) Weight
Sales Volume (Rs) 5,00,00 4,50,000 90 3 270
0
Receivables (days) 45 50 89 2 178
New Customers 04 05 125 1 125
(Nos)
Total 6 573
Sales Analysis
Cost Analysis
Effectiveness
of a
Sales Profitability Analysis
Organization
Productivity Analysis
Role of
Intermediary
Intermediaries
Vertical….
SDM- Ch 9 Tata McGraw Hill Publishing 137
Various parties like producers, wholesalers and
retailers act as a unified system to avoid
conflicts
Vertical Improves operating efficiency and marketing
effectiveness
Marketing
3 types:
System Corporate
Administered
Contractual
Corporate…
Administered…
SDM- Ch 9 Tata McGraw Hill Publishing 139
Co-ordinates distribution activities
Gains market power by dominating a channel
Administered Usually true of dominant brands like GE,
VMS Kodak, Pepsi, Gillette, Coke and HLL in certain
locations
Command high level of co-operation in shelf space,
displays, pricing policies and promotion strategies
Contractual…
SDM- Ch 9 Tata McGraw Hill Publishing 140
Independent producers, wholesalers and
retailers operate on a contract
Could take the forms of:
Contractual Wholesaler sponsored voluntary chains
Retailer co-operatives
VMS Manufacturer sponsored retail or wholesale
franchise
Franchise organizations
Service firm sponsored retail franchise
Multi-channel…
SDM- Ch 9 Tata McGraw Hill Publishing 142
Company uses different channels to reach / same or
different market segments
Most FMCG companies have separate networks for
Multi-channel retail market and institutions
Distribution Pharma companies may use different channels to
reach doctors, chemists and hospitals
Who is responsible?
Channel formats…
SDM- Ch 9 Tata McGraw Hill Publishing 154
Is decided by who ‘drives’ the channel system:
Channel
Producer driven
Seller driven
Formats Service driven
Others
Channel
Levels Distributor/ wholesaler
Retailer Retailer
1.
Unit IV
Case study 4
4. 1 Channel
Intermediaries-
Wholesaling
and Retailing
Widespread economy – consumers can only
reached by thousands of retailers (except for
Need for Wholesalers consumer durables and industrial products)
Reaching these retailers by a company directly
is not possible (except for consumer durables
and industrial products)
Hence the need for wholesalers in two forms:
Well established free-lance wholesalers
Contracted distributors, stockists and agents
Characteristics….
SDM- Ch 11 Tata McGraw Hill Publishing 166
Operate on large volumes but with chosen
Characteristics of
group of products
Wholesalers Food, grocery, pharma or automobile spares etc
The company itself, contracted parties or free
lancers, can operate as wholesalers
Mostly B2B business – trade and institutions
Wholesaler could also be a retailer – in rural
markets – W/s sells to other retailers and also to
consumers
Definition…
SDM- Ch 11 Tata McGraw Hill Publishing 168
Definition
Wholesaling is concerned with the activities of those
persons or establishments that sell to retailers and other
merchants and / or industrial, institutional and commercial
users but do not sell in large amounts to consumers – US
Bureau of Census
Delivering value…
SDM- Ch 11 Tata McGraw Hill Publishing 169
Delivering Value
Keep goods accessible to customers instantly
At times, get together to bargain for better terms
Pass on benefits or incentives to their customers
Have a wide trading area
Major decisions…
SDM- Ch 11 Tata McGraw Hill Publishing 175
Which markets to operate in
Manpower to employ
What products to sell
Major Pricing decisions / Promotional support
Wholesaling Credit and collections
Decisions Image and customer perception
Warehouse location and design
Inventory Control
Unfavourable…
SDM- Ch 11 Tata McGraw Hill Publishing 178
Unfavourable Factors
Companies coverage focus on retailers and institutions
through their distributors
Using modern retail formats as wholesalers
More outlets like Metro C&C being encouraged
Enforcing strict price control so that w/s do not sell
below company prices.
Managing distributors….
SDM- Ch 11 Tata McGraw Hill Publishing 182
Managing
Distributors The principles are similar across industry verticals. FMCG is
the most complex.
Can maximize sales and market shares.
Has to ensure buying goods from the company and re-
distribution to the trade
SDM- Ch 11 Cost
Tata McGraw Hill Publishing of servicing… 185
Cost benefit of using distributors to be assessed
Cost of Servicing Logistics cost of serving the market
The number of customers to be covered by category –
wholesalers, retailers, institutions
Frequency of visits to markets and outlets
Sales revenue estimate from each visit
Markets to be covered with ready stocks or order
booking for later delivery
Likely collections during each visit – gives an idea of
the credit requirements
Expectations…
SDM- Ch 11 Tata McGraw Hill Publishing 186
To be stated at the start of the relationship
Helps get the right kind of distributor also
Achieving sales targets – volume, value and packs
Expectations Financial commitment on inventory and credit
Investment in infrastructure – space, vehicles
from a Manpower – front line and back office
Distributor Distribution effort – market and outlet coverage as
per a beat plan with productive calls
Developing new markets and new accounts
Managing key accounts and institutional business
Product differentiation….
Performance measures…
Franchisor benefits…
SDM- Ch 10 Tata McGraw Hill Publishing 220
Benefits to Franchisor
Faster expansion
Local franchisee pays lower advertising rates than a
national firm
Owners motivated to work more hours than mere
employees
Local taxes and licenses are responsibility of
franchisees
Franchisee benefits…
SDM- Ch 10 Tata McGraw Hill Publishing 221
Benefits to Franchisee
Quick recognition among potential customers
Management training provided by principal
Principal may buy ingredients and supplies and
sell to franchisee at lower prices
Financial assistance
Promotional aids, in-store displays etc
Electronic channels…
FDI in retail….
SDM- Ch 10 Tata McGraw Hill Publishing 224
Any business selling/renting a product or service to
Key a consumer is retailing
Learnings A consumer selects a retailer based on price,
location, merchandise selection, fairness in
dealings, helpful salespeople and other services
Organized retail is growing strong and negotiating
better terms from producer suppliers
In India, up to 51% of foreign investment is
permitted in single-brand businesses
Steps….
SDM- Ch 12 Tata McGraw Hill Publishing 227
Define customer needs
Clarify channel objectives
Channel Look at alternative systems which can meet these objectives
Customer needs….
SDM- Ch 12 Tata McGraw Hill Publishing 228
Customer Lot size – most convenient pack size which the
Needs consumer can buy at a time
Waiting time – time elapsed between the desire to
buy the product and the time when he can actually
buy it – should be almost zero
Variety – choice of products, brands, packs
Place utility – choice of buying where he wants.
For a consumer product it has to be at a location
closest to his residence
Components …
SDM- Ch 12 Tata McGraw Hill Publishing 229
Revenue generation or the commercial part
Physical delivery of the goods or services – the logistics
Channel part
Design The ‘service’ part to take care of after-sales support
Components Each part of the system is likely to be handled by a
different entity.
Design issues….
SDM- Ch 12 Tata McGraw Hill Publishing 230
Activities required and who will perform
Activities relationship to service levels
Positioning
Focus
Development
Adaptability
Subjects…..
SDM- Ch 12 Tata McGraw Hill Publishing 244
Field training on how the markets are to be
worked to achieve sales, collect payments and
ensure the right kind of merchandising
Class room training on company products,
Subjects for competition and how to tackle it to gain market
Training shares
Special meetings for new product launches
Submitting reports and maintaining records
Statutory compliance
“power”……
Modifying a network..
SDM- Ch 12 Tata McGraw Hill Publishing 251
Service level desired and willing to deliver
Steps for Modifying Activities required to deliver service level, who will do
Networks it and at what cost
Derive ideal channel structure and compare with
existing to know gaps by evaluating based on
standard parameters relating to effectiveness and
efficiency
Action to bridge the gaps and put modified channel
system into place
Define key performance indicators
Electronic channels…
SDM- Ch 12 Tata McGraw Hill Publishing 255
Unlimited assortment
Retailing on the
Internet Items may not be on hold
No product touch or feel
More information makes the customer a better
shopper
Comparison shopping possible
Consumer has to plan purchases ahead
No need to handle cash – payment can be on-line
Shopping is 24X7
Vertical integration….
SDM- Ch 12 Tata McGraw Hill Publishing 256
Vertical Integration
This means owning the channel. The company does the
work of production, branding and distribution.
Downstream integration means the producer of the goods
also does the distribution – Eureka Forbes, Bata
Outsourcing..
SDM- Ch 12 Tata McGraw Hill Publishing 258
Is the most prevalent situation as:
Outsourcing The ‘reach’ is better
Distribution The cost may be lower
The company can exploit the ‘core competence’ of its
channel partners, which is distribution
Vertical integration is a choice which will become
long term and cannot be easily changed once the
resources have been committed.
However, direct distribution (owning the channel)
is still the best solution for ‘intensive’ distribution.
Use of power….
SDM- Ch 13 Tata McGraw Hill Publishing 262
Channel system has a set of players:
Use of Power Bases Not equally motivated to implement the ideal channel
design
Whose expectations from the system differ
Use of the 5 power bases brings diverse channel
partners in line for effective implementation
5 power bases are: reward, coercion, legitimate, expert
and referent (French & Raven)
Two more power bases in the Indian context are
support and competition
Countervailing power……
SDM- Ch 13 Tata McGraw Hill Publishing 265
Balances the power exerted by one channel member.
Countervailing It is not a one-sided equation.
Power Both the channel member and the principal can have
influence on each other.
Results from interdependence within the channel
system.
Company exerts power on the distributor to get its
coverage and revenues
Distributor has enough influence on his customers and this
is critical for the company also
Weaker partners do get exploited – ancillary units
SDM- Ch 13 Co-ordination…
Tata McGraw Hill Publishing 266
Channel system is well co-ordinated if each
Channel
Coordination member understands his role correctly and
performs it to help the system achieve its
customer service objectives.
In a co-ordinated channel:
Interests of all channel members are protected
Actions of all are in line with overall objectives
Flows are streamlined to desired customer service
objectives
Channel co-ordination is an on-going effort
Conflict….
SDM- Ch 13 Tata McGraw Hill Publishing 267
Conflict is generated when actions of any channel
member come in the way of the system achieving
Channel Conflicts
its objectives
Three broad categories of channel conflict are:
Goal conflict – understanding of objectives by various
channel members is different
Domain conflict – understand responsibilities and
authority differently
Perception conflict – reading of the market place is
different and proposed actions vary
CONFLICT
Four stages….
SDM- Ch 13 Tata McGraw Hill Publishing 271
Four Stages
LATENT
PERCEIVED
FELT
MANIFEST
Resolving….
Accommodation
Compromise
Collaboration
Information PROCESSING
Process
STORAGE
USE
Development….
SDM – Ch 14 Tata McGraw Hill Publishing 297
Decide what information is required
Developing a
Channel MIS Organize information in a manner suitable
for interpretation and action
Competition Action
possible
Spot action while in the market and taken by
channel partners or sales people
Tracking
Impact on Timely action to provide better support to the trade
service and retain their goodwill
MARKET
INTELLIGENCE Usually secondary data is sufficient to establish the
feasibility of the market.