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Chapter 5
The Strategic Role of Information
in Sales Management
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Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
Learning Objectives
• Discuss the differences between market potential, sales potential,
sales forecast, and sales quota.
• Understand the various methods by which sales managers develop
sales forecasts.
• Outline the process of setting a sales quota.
• Explain the various types of quotas used in sales management.
• Discuss key approaches to determining sales force size.
• Describe the sales territory design process.
• Understand the importance of sales analysis for managerial decision
making.
• Conduct a sales analysis.
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Information Drives Management
Decision Making and Planning
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Sales forecasts
Territory estimates
Quotas
Sales force size
Sales territory design
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Market Opportunity Analysis
• Market potential –estimate of possible sales of
a commodity, a group of commodities, or a
service for an entire industry in a market during
a stated period under ideal conditions
• Sales potential – the portion of the market
potential that the firm can expect to reasonably
achieve
• Sales forecast – an estimate of the dollar or unit
sales for a specified future period
• Sales quotas – sales goals assigned to a
marketing unit for use in managing sales efforts
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Subjective Methods of Sales
Forecasting
• User expectations – buyer indicates
intention to purchase
• Sales force composite – sales force
opinions
• Jury of executive opinion - key experts’
opinions
• Delphi technique – each participant
prepares an estimate, and these are
compared anonymously and iteratively
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Objective Methods of Sales
Forecasting
• Market test – place product in select
areas
• Time series analysis – relies on historical
data to develop predictions for the future
• Statistical demand analysis – attempts
to make a comparison to determine the
relationship between sales and factors that
influence sales
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Forms of Time Series Analysis
• Moving average – averaging sales results over
previous time periods to forecast into the future
• Exponential smoothing – a type of moving
average where most recent years are given
more weight
• Decomposition – applied to monthly or
quarterly data where seasonal pattern is evident
• A critical adjustment is that of seasonality and
cyclical factors
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Choosing a Forecasting Method
• Which forecasting method should be used and
how accurate is the forecast likely to be?
• In general, the various forecast comparisons
suggest that no method remains superior under
all conditions.
• Good forecasters apply multiple forecasting
methods to the problem
• Scenario planning prepares a series of “what-if”
questions and produces possible outcomes
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Developing Territory Estimates
• Territory estimates effect:
– The design of sales territories
– Procedures for identifying potential customers
– The establishment of sales quotas
– Compensation and its subcomponents
– The evaluation of salesperson performance
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Planning Tools
• North American Industry Classification System
(NAICS)
– Developed by the US Bureau of the Census,
organizes the reporting of business information
– Each industry in the US is assigned a two-digit
number
• Buying Power Index (BPI)
– Generated and published by Sales Marketing
Management Magazine, considers income,
population and retail sales
– Most useful with low-priced convenience goods
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Sales Quotas
• Goals assigned to salespeople
• Apply to specific periods and may be
expressed in dollars or physical units
• Tool for sales managers’ planning and
controlling field selling activities and
results
• Benchmark for evaluating sales
effectiveness
• Motivate sales people
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Purpose of Quotas
• Quotas facilitate planning and control of
the field selling effort
– Provide incentives for sales representatives
– Provide measures to evaluate salespeople’s
performance.
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Characteristics of a Good Quota
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•
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Attainable
Easy to understand
Complete
Timely
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Types of Quotas
• Those that emphasize sales or some
aspect of sales
• Those that focus on sales activities
• Those that examine financial criteria such
as gross margin or contribution to
overhead
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Sales Volume Quotas
• Often based on past sales.
• Related directly to market potential, thus
credible and easily understood.
• May be expresses in dollars, physical
units, or points.
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Activity Quotas
• Reflect territorial conditions
• Require a detailed analysis of the work
required for effective territorial coverage
• Customers influence activity quotas
through:
– Account and order size
– Purchasing patterns
– Support required for satisfaction
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Financial Quotas
• Reflect the financial goals of the firm
– Sales volume
– Gross margin
– Intended profit margin
– Additional sales potential
– Cost of support and service
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Determining Sales Force Size
• Salespeople are among the most
productive assets of a company, and they
are also among the most expensive!
• How can an optimal sales force be
established?
• Breakdown method:
Sales Volume
Number of sales
personnel needed
=
Productivity
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Determining Sales Force Size
• Workload method uses the buildup
method to estimate the work required to
serve the entire market
• Incremental method suggests that sales
representatives should be added as long
as the incremental profit produce by their
addition exceeds the incremental cost
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Sales Analysis
• Simple sales analysis - facts are listed and
not measured against any standard
• Bases for sales comparison
– Quotas
– Comparative sales forecast
– Forecast vs. actual
• Reports can focus on exceptions or
significant deviations from the financial
norms or budget.
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Key Terms
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•
•
•
•
market potential
sales potential
sales forecast
sales quotas
subjective forecasting methods
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–
–
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user expectations method
sales force composite
jury of executive opinion
Delphi technique
• objective forecasting methods
– market test
– time-series analysis
•
•
•
•
moving average
exponential smoothing
decomposition
seasonality
– statistical demand analysis
– scenario planning
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•North American Industry
Classification System (NAICS)
•sales volume quotas
•activity quotas
•financial quotas
•sales force deployment
•breakdown method
•workload method
•incremental method
•account analysis
•sales analysis
•80:20 principle
•enterprise resource planning (ERP)
•Buying Power Index (BPI)
•iceberg principle
•isolate and explode
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Mark W. Johnston
Rollins College
McGraw-Hill/Irwin
Greg W. Marshall
Rollins College
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