Chapter 6 Introduction to Sales Management and Its Evolving Roles PowerPoint presentation prepared by Dr. Rajiv Mehta New Jersey Institute of Technology Chapter Outline • Purpose and Levels of Organizational Planning • Sales Management Planning Process • Causes of Unsuccessful Planning Source: Flying Colours Ltd. • Organizing the Sales Force Copyright © Houghton Mifflin Harcourt Publishing Company. All rights reserved. 6|2 Learning Objectives After reading this chapter, you should be able to do the following: 1. Understand the purpose and levels of organizational planning. 2. Apply the sales planning process, including strategic and tactical sales planning. 3. Avoid unsuccessful sales planning. 4. Describe different ways to organize the sales force, including calculating its optimal size. Copyright © Houghton Mifflin Harcourt Publishing Company. All rights reserved. 6|3 The Purpose and Benefits of Planning • improving morale when the entire sales organization actively participates in the planning process • providing direction and focus for organizational efforts • improving cooperation and coordination of sales force efforts • developing standards by which sales force performance can be measured and deviations can be identified to take corrective actions • increasing the sales organization’s flexibility in dealing with unexpected developments Copyright © Houghton Mifflin Harcourt Publishing Company. All rights reserved. 6|4 Planning at Different Levels of Management Type Strategic planning Participants CEO, boards, president, senior VPs Focus company mission, vision, goals, primary strategies, overall budgeting Tactical planning general sales manager, director of marketing departmental, yearly, and quarterly plans, policies, procedures, budgets Monthly and weekly planning regional sales managers branch plans and budgets Daily planning sales supervisors and sales unit plans and budget reps Copyright © Houghton Mifflin Harcourt Publishing Company. All rights reserved. 6|5 Sales and Operational Planning Process Develop performance standard controls so they can compare actual performance to predetermined standards. Predetermined approaches for handling routine matters or reoccurring situations are called policies. Objectives are specific results desired within a designated time frame, for example, become best service-oriented sales force. 1. Define goals and objectives 6. Develop and enforce controls 2. Set policies Sales & operational planning process 3. Establish procedures 5. Direct tactics 4. Devise strategies Tactics are day-to-day actions that make up the strategic plan, for example, using special sales contests to spur sales of products. A strategy is an overall program of action for using resources to achieve a goal or objective. Copyright © Houghton Mifflin Harcourt Publishing Company. All rights reserved. Detailed descriptions of specific steps for carrying out actions are called procedures. 6|6 Sales and Operational Planning Process Define goals and objectives. Set policies. Establish procedures. Copyright © Houghton Mifflin Harcourt Publishing Company. All rights reserved. Devise strategies. Direct tactics. Develop and enforce controls. 6|7 Planning Components for Managers 1. Diagnosis: Where are we now? 2. Prognosis: Where are we headed if no changes are made? 3. Objectives: Where should we be headed? 4. Strategy: What is the best way to get there? 5. Tactics: What actions need to be taken by whom, and when? 6. Control: What measures must be monitored so we know how we’re doing? Copyright © Houghton Mifflin Harcourt Publishing Company. All rights reserved. Source: Digital Vision 6|8 Stages in the Sales Management Planning Process Analyze the situation. Set goals and objectives. Determine market potential and forecast sales. Develop strategies. Allocate resources and develop budgets. Evaluate and control. Copyright © Houghton Mifflin Harcourt Publishing Company. All rights reserved. 6|9 competitor: • numbers channels of distribution, channel partners, storage and transportation facilities, and intensity of distribution Analyze the Situation • strengths, weaknesses the number and types of potential buyers, their demographic and behavioral profiles, their attitudes and buying patterns, and their servicing needs • products • prices • market shares • sales trends for each brand 1. Market characteristics 6. Distribution systems 2. Competition Analyze the situation 3. Sales, cost, and profit data 5. Promotional mix 4. Benefits offered personal selling, advertising, sales promotion, and emerging Internet strategies brand names, prices, packages, and service Copyright © Houghton Mifflin Harcourt Publishing Company. All rights reserved. financial data by product, market, territory, and time period 6 | 10 Set Goals and Objectives 1. Sales goals Set goals and objectives • implement a sales management training program for new sales managers within two years • reduce sales force turnover to below the industry average over the next five years Copyright © Houghton Mifflin Harcourt Publishing Company. All rights reserved. 2. Sales objectives • increase sales by 15% next year • reduce customer complaints by 10% next year • increase the number of new customer accounts by 20% in the next six months 6 | 11 Determine Market Potential and Forecast Sales 1. Market potential the maximum possible sales for an entire industry Determine market potential and forecast sales 3. Market capacity 2. Sales potential the maximum possible sales for a company the units the market will absorb if the product or service is free Copyright © Houghton Mifflin Harcourt Publishing Company. All rights reserved. 6 | 12 Develop Strategies: Four Types Of Growth Strategies New market Current market Current product A. Market penetration Market penetration focuses on increasing sales of current products in current markets by more intensive marketing efforts. New product B. Product development Product development creates new or improved products for current markets by adding new sizes, models with new features, alternative quality versions, or creative new alternatives to satisfy the same basic needs. C. Market development D. Product diversification Market development seeks to open up new markets for current products. Diversification refers to expansion into new product lines or by purchasing new businesses. Copyright © Houghton Mifflin Harcourt Publishing Company. All rights reserved. 6 | 13 Four Types of Growth Strategies Current market Current product A. Market penetration B. Product development Modifying an existing product in an existing market (also new uses) Introducing a new product into an established market for example, Honda Accord for example, Toyota Camry for example, Nissan Maxima for example, for example, for example, for example, C. Market development New market New product Finding a new market for an existing product (also new users) for example, Harley Davidson for example, Gatorade for example, Power Bars Copyright © Houghton Mifflin Harcourt Publishing Company. All rights reserved. BMW X5, Volvo SUV Toyota Prius, Scion (Gen Y) LandRover’s RangeRover Honda Element (Gen Y) D. Product diversification Creating a new product for a new market for example, Sony electronics to VAIO for example, Hooters Restaurants, Airlines for example, Ford (Jaguar), Honda (Acura) for example, Virgin Airlines, Megastores, soft drinks, and cell phones 6 | 14 Business Portfolio Approach: Strategic Business Units (SBU) • SBUs are divisions of major firms within multiple product • • • • companies. A division, product line, or single product may be classed as an SBU. Each SBU has its own management. SBUs are evaluated on their profit and growth potential as standalone firms. SBUs have several characteristics: – – – – – distinct mission separate management unique customer segments their own competitors planning independent of other company units Copyright © Houghton Mifflin Harcourt Publishing Company. All rights reserved. 6 | 15 Three Levels of Strategy: Strategic Business Units Corporate level strategy: Corporation What business are we in? Business level strategy: How do we compete? Marketing Finance and accounting Strategic business unit A Production Copyright © Houghton Mifflin Harcourt Publishing Company. All rights reserved. Strategic business unit B Human resources Strategic business unit C Strategic business unit D Research and development Functional level strategy: How do we support business level strategy? 6 | 16 General Motors Corporation: Organized by Strategic Business Units GMC Chevrolet Marketing Finance and accounting Production Cadillac Human resources Buick Research and development GMC Truck Saturn Hummer Saab Pontiac Oldsmobile Electronic Data Systems GMC Finance Firms are treated as products in a portfolio (like stocks in an individual’s portfolio), for example, keep and expand those that do well; sell those that don’t. Copyright © Houghton Mifflin Harcourt Publishing Company. All rights reserved. 6 | 17 Ford Motor Corporation: Organized by Strategic Business Units Firms are treated as products in a portfolio (like stocks in an individual’s portfolio), for example, keep and expand those that do well; sell those that don’t. Ford Lincoln Mercury FMC Volvo Jaguar Aston Martin Why did Ford buy Jaguar and Volvo? Why was Aston Martin was sold? Marketing Finance and accounting Production Human resources R&D Why might Ford sell Jaguar? Copyright © Houghton Mifflin Harcourt Publishing Company. All rights reserved. 6 | 18 United Technologies Corporation: Organized by Strategic Business Units UTC Carrier Chubb Hamilton Sunstrand Pratt & Whitney OTIS Sikorsky UTC Power Blackhawk Helicopters Marketing Finance and accounting Production Human resources R&D Copyright © Houghton Mifflin Harcourt Publishing Company. All rights reserved. 6 | 19 Boston Consulting Group’s Market Share/Market Growth Matrix High High Stars Low Problem children (aka question marks) Low Relative Market Growth Relative Market Share generate considerable income have potential to become stars or cash cows Cash cows Dogs generate strong cash flow generate little profits or make losses Copyright © Houghton Mifflin Harcourt Publishing Company. All rights reserved. 6 | 20 BCG Matrix: What Strategy Would You Employ? High High Stars Low Problem children (aka question marks) Strategy? Low Relative Market Growth Relative Market Share Strategy? generate considerable income can become stars or cash cows Cash cows Dogs generate strong cash flow generate little profits or make losses Strategy? Copyright © Houghton Mifflin Harcourt Publishing Company. All rights reserved. 6 | 21 BCG Matrix: What Strategy Would You Employ? High High Stars Low Problem children (aka question marks) generate considerable income Strategy: invest funds for future growth Low Relative Market Growth Relative Market Share can become stars or cash cows Strategy: invest more funds for growth or divest Cash cows Dogs generate strong cash flow generate little profits or make losses Strategy: milk profits to help stars and question marks Copyright © Houghton Mifflin Harcourt Publishing Company. All rights reserved. Strategy: consider divesting SBU or product 6 | 22 Stakeholders 1. Government: federal, state, local 6. Investigative reporters 2. Company employees Stakeholders 5. Suppliers 3. Stockholders 4. Financial community Copyright © Houghton Mifflin Harcourt Publishing Company. All rights reserved. 6 | 23 Allocate Resources and Develop Budgets • Given detailed sub-plans and tactics, managers must allocate resources—money, people, materials, equipment, and time—to carry out the plans. • The sales budget is the expected expenditures required to achieve projected sales revenues. Copyright © Houghton Mifflin Harcourt Publishing Company. All rights reserved. 6 | 24 Implement the Plan • Sales managers often use management by objectives (MBO) to involve subordinates in planning and budgeting. • A program evaluation and review technique (PERT) diagram specifies a project’s critical path—the sequence of tasks to be completed, the time to complete each activity, and the responsible individuals. Copyright © Houghton Mifflin Harcourt Publishing Company. All rights reserved. 6 | 25 Performance Standards and Measures Customer Service Internal Components External measures measures 1. Industry Reliability averages 1. Customer satisfaction 2. Past Tangibility performance Performance standards and measures 2. Societal satisfaction 3. Managerial Responsiveness expectations Copyright © Houghton Mifflin Harcourt Publishing Company. All rights reserved. 6 | 26 Planning Tools • Unsuccessful planning may result from making erroneous assumptions. • Thus, management must make assumptions about the future by using these two tools: 1. Dialectic planning Planning tools • Dialectic planning examines the validity of assumptions in a forecast. • Calls for making a new set of assumptions to revaluate previous plans. • Plans are rigorously challenged; a second plan is prepared. Copyright © Houghton Mifflin Harcourt Publishing Company. All rights reserved. 2. Contingency planning A contingency plan is a backup plan to the one adopted, and it will be executed only if events occur beyond the control of the major plan. 6 | 27 Organizing the Sales Force • The purpose of organizing the sales force is to accomplish marketing and sales objectives by taking these steps: – shortening the time a sales manager needs to evaluate and respond to changing market needs – arranging activities efficiently – establishing and maintaining open channels of communication with customers, salespeople, support staff, and concerned stakeholders Copyright © Houghton Mifflin Harcourt Publishing Company. All rights reserved. 6 | 28 Types of Organizations • • Matrix organizations revolve around projects. 3. Functional 4. Matrix organization Line organizations have few managers who have authority over specific functional areas of the business, such as production, finance, or sales Types of organizations 1. Line • • Staff specialists have line authority, for example, a sales manager directs salespeople, but the sales training director also has authority over the sales force for training. 2. Line and staff Copyright © Houghton Mifflin Harcourt Publishing Company. All rights reserved. • Line and staff organizations have more functional areas and staff assistants to complete specialized support activities, such as marketing research or sales forecasting. Staff managers only make recommendations or assist line managers. 6 | 29 Matrix Organizations • Matrix organizations encourage teamwork to maximize individual contributions. • Team leaders are viewed as coordinators rather than as bosses. • Matrix organizations are most effective in these circumstances: – projects or products are unique – team members are professionals in terms of expertise and skills – project is of a short duration – speed and creativity are as important as cost Copyright © Houghton Mifflin Harcourt Publishing Company. All rights reserved. 6 | 30 Line Organization for Marketing and Sales Copyright © Houghton Mifflin Harcourt Publishing Company. All rights reserved. 6 | 31 Line-and-Staff Organization Copyright © Houghton Mifflin Harcourt Publishing Company. All rights reserved. 6 | 32 Functional Organization Copyright © Houghton Mifflin Harcourt Publishing Company. All rights reserved. 6 | 33 Matrix Organizations Copyright © Houghton Mifflin Harcourt Publishing Company. All rights reserved. 6 | 34 Types of Sales Department Organizations 5. Combination of the preceding four 1. Geographic 4. Market Types of sales department organizations 3. Function Copyright © Houghton Mifflin Harcourt Publishing Company. All rights reserved. 2. Product 6 | 35 Geographic Sales Organization Copyright © Houghton Mifflin Harcourt Publishing Company. All rights reserved. 6 | 36 Product Sales Organization Honda has product lines that include the following: • automobiles • lawn mowers • generators • motorcycles Copyright © Houghton Mifflin Harcourt Publishing Company. All rights reserved. 6 | 37 Functional Sales Organization Copyright © Houghton Mifflin Harcourt Publishing Company. All rights reserved. 6 | 38 Customer/Market Sales Organization Copyright © Houghton Mifflin Harcourt Publishing Company. All rights reserved. • Aircraft manufacturers have different marketing efforts for the following : • government • military • commercial markets 6 | 39 Combination Sales Organization—Organized by Geography, Products, and Customers Copyright © Houghton Mifflin Harcourt Publishing Company. All rights reserved. 6 | 40 Team Selling • Selling teams frequently include individuals from diverse functional areas such as operations, finance, research and development, marketing, and sometimes even the CEO. • Here are some reasons for adopting a team selling approach: – Information needs of customers are large. – Several people are involved in the decision to buy. – The potential sale is large for the selling or buying company or both. Source: Flying Colours Ltd. – Complexity of the products or services is high and therefore beyond a single individual’s capabilities. Copyright © Houghton Mifflin Harcourt Publishing Company. All rights reserved. 6 | 41 Guidelines for Developing Sales Organizations 6. Coordination and balance 1. A market-oriented approach 5. Flexibility 4. A reasonable span of control Sales organizations development guidelines 3. Defined areas of authority and responsibility Copyright © Houghton Mifflin Harcourt Publishing Company. All rights reserved. 2. Approach designed around sales activities 6 | 42 Size of the Sales Force 1. Equalized workload assumes that the total workload in covering the market consists of three factors: a) customer size b) sales volume potential c) travel time Size of the sales force 3. Sales potential based on assumption of what the average sales representative will achieve in annual sales volume, then divide by year sales forecasted Copyright © Houghton Mifflin Harcourt Publishing Company. All rights reserved. 2. Incremental productivity assumes the sales force should be increased until profits added by the last salesperson hired equal the costs of employing that salesperson. 6 | 43 Guidelines for Developing a High-Quality Sales Organization • • • • • • • • Be willing to delegate. Be sure authority equals responsibility. Put salespeople where they fit best. Be more than just an efficiency expert. Hold sales personnel accountable for what they do. Be flexible. Know what needs to be done. Organize the sales force to avoid unequal workloads. Copyright © Houghton Mifflin Harcourt Publishing Company. All rights reserved. 6 | 44 Developing Sales Organizations • To learn about optimizing sales organizations, go to – http://www.optimalthinking.com/sales-optimization.html • To read a good article on sales force planning, go to – http://www.allaboutmedicalsales.com/articles/salesforcebusiness planning_julianashley_291101.html • To read white papers on organizing the sales force, go to – http://whitepapers.zdnet.com/presentation.aspx?&docid=81288& promo=100511 (sign-in required) – http://whitepapers.zdnet.com/presentation.aspx?&docid=81296& promo=100511 (sign-in required) Copyright © Houghton Mifflin Harcourt Publishing Company. All rights reserved. 6 | 45 Ethical Situation: What Would You Do? Discussion Question Each year, your regional sales manager asks you and the other district sales managers reporting to him to submit their requests for additional salespeople, if needed. You know that you already have enough salespeople to achieve next year’s assigned quota for your district, but you generally follow the self-serving budgeting rule: “Always request more salespeople and a higher sales budget than you actually need.” Even if you don’t get the additional resources, you can always use the lack of adequate resources as an excuse if your district underperforms. Copyright © Houghton Mifflin Harcourt Publishing Company. All rights reserved. 6 | 46