Organizational Strategies and The Sales Function

1. Organizational Strategiesand The Sales Function Module Three

2. Action The Importance of TrustAn Expert’s Viewpoint: Franciscan Estates consists of seven winery estates based in California. Using the traditional sales strategy of working through distributors, the company had little information about product or customer sales beyond the distributor level. The company developed a customer relationship management (CRM) strategy to establish different types of relationships with different customers at different levels.

3. Result The Importance of TrustAn Expert’s Viewpoint: The sales organization uses this information to strengthen relationships with existing accounts and to prioritize sales efforts to existing and new customers . . . . . . Franciscan Estates has used it CRM strategy and technology to develop a competitive advantage for its marketing and selling efforts.

4. Strategy Level Key Decision Areas KeyDecision Makers Corporate Mission SBU Definition Corporate Strategy Corporate Management SBU Objectives Business Strategy SBU Management Strategy Types Strategy Execution Organizational Strategy Levels

5. Strategy Level Key Decision Areas KeyDecision Makers Target Market Selection Marketing Strategy Corporate Management Integrated Mkt Comm. Marketing Mix Dev. Account Targeting Strategy Sales Strategy SBU Management Sales Channel Strategy Relationship Strategy Organizational Strategy Levels

6. An SBU is a single product or brand, a line of products, or a mix of related products that meets a common market need or a group of related needs, and the unit's management is responsible for all (or most) of the basic business functions." Cravens (1991) Definition ofStrategic Business Units (SBUs)

7. Why Does This Happen? Revenue Time

8. Market Share Objectives Sales Organization Objectives Primary Sales Tasks Compensation System SBU Objectives andthe Sales Organization Build Build sales vol. Secure distrib. Prospective and new accounts Provide high service levels particularly pre-sales service Product/market feedback Salary plus incentive

9. Market Share Objectives Sales Organization Objectives Primary Sales Tasks Compensation System SBU Objectives andthe Sales Organization Hold Maintain sales vol. Consolidate market position through concentration on targeted segments Secure additional outlets Call on targeted current accounts Incr. service levels to current accounts Call on new accounts Salary plus commission or bonus

10. Market Share Objectives Sales Organization Objectives Primary Sales Tasks Compensation System SBU Objectives andthe Sales Organization Harvest Reduce selling costs Target profitable accounts Service most profitable accounts eliminate unprofitable accounts Reduce service levels Reduce inventories levels Salary plus bonus

11. Market Share Objectives Sales Organization Objectives Primary Sales Tasks Compensation System SBU Objectives andthe Sales Organization Divest or Liquidate Minimize selling costs and clear out inventory Dump inventory Eliminate service Salary

12. Business Strategy andthe Sales Function • Low-cost supplier Strategy Type Sales Force Role Pursue large customers Minimize cost Compete on price Seek customers who are low price shoppers

13. Business Strategy andthe Sales Function • Low-cost supplier • Differentiation Strategy Type Sales Force Role Compete on non-price benefits Provide high quality customer service Seek customers who are not low price shoppers

14. Business Strategy andthe Sales Function • Low-cost supplier • Differentiation • Niche Strategy Type Sales Force Role Serve a distinct target market not served well by others Provide high quality customer service Seek customers who are not low price shoppers

15. Advantages Only promotional tool that consists of personal communication between seller and buyer More credible and has more impact Better timing of message delivery Ability to tailor message to buyer Allows for sale to be closed Disadvantage High cost per contact Marketing Strategy andthe Sales Function

16. Personal Selling-Driven vs. Advertising-DrivenMarketing Communications Strategies Personal Selling When Message Flexibility is Important When Message Timing is Important When Reaction Speed is Important When Message Credibility is Important When Trying to Close the Sale When Low Cost per Contact is Important When Repetitive Contact is Important When Control of Message is Important When Audience is Large Advertising

17. Target Market: A definition of the specific market segment to be served Personal Selling-Driven Promotional Strategies are appropriate when: The market consists of only a few buyers that tend to be concentrated in location The buyer needs a great deal of information The purchase is important The product is complex Service after the sale is important Target Market Situations andPersonal Selling

18. The strategic integration of multiple marketing communications tools communicating a consistent message in the most effective and efficient manner. Integrated Marketing Communications

19. Account Targeting BuyingSituation Strategy Relationship BuyingCenter Strategy Sales Organizational Account Salesperson Strategy Buyer Behavior Sales Channel BuyingProcess Strategy Selling Buying Needs Strategy The Sales Strategy Framework

20. Major Category Types Business or Industrial Organizations Organizational Buyer Behavior:Types of Organizations Users: purchase products and services to produce other products and services Original Equipment Manufacturers (OEM):purchase products to incorporate into products Resellers: purchase products to sell

21. Major Category Types Organizational Buyer Behavior:Types of Organizations Federal, State, and Local Government Agencies Government Organizations Public and Private Institutions Institutions

22. Organizational Buyer Behavior: Buying Situations Straight Rebuy Buying Situation • Routinized Response Behavior Modified Rebuy Buying Situation • Limited Problem Solving New Task Buying Situation • Extensive Problem Solving

23. Organizational Buyer Behavior: Buying Center • Initiators • Users • Gatekeepers • Influencers • Deciders • Purchasers

24. Organizational Buyer Behavior:Buying Process Phase 1: Recognize Problem/Need Phase 2: Determine Item Specs/Quantity Needed Phase 3: Specify Item Specs/Quantity Needed Phase 4: Identify and Qualify Potential Sources Phase 5: Acquire and Analyze Proposals Phase 6: Evaluate Proposals/Select Suppliers Phase 7: Selection of Order Routine Phase 8: Performance Feedback/Evaluation

25. Personal Goals Organizational Goals Want a Feeling of Power Control Cost in Product Use Situation Seek Personal Pleasure Few Breakdowns of Product Dependable Delivery for Repeat Purchases Desire Job Security Adequate Supply of Products Want to be Well Liked Want Respect Cost within Budget Limits Personal and Organizational Needs

26. The classification of accounts withina target market into categories forthe purpose of developing strategic approaches for selling to each account or account group. Sales Strategy:Account-Targeting Strategy

27. A determination of the type of relationship to be developed with different account groups. Sales Strategy:Relationship Strategy

28. Transaction Solutions Partnership Collaborative Goal Sell Products Add Value Time Frame Long Short Customized Standardized Offering Number of Customers Many Few Characteristics of Relationship Strategies

29. Ensuring that accounts receive selling effort coverage in an effective and efficient manner. Sales Strategy: Selling Strategy

30. High Cost to Serve Solutions Partnership Collaborative Transaction Low Commitment High Matching Selling andRelationship Strategies

31. The planned selling approach for each relationship strategy. The Internet Industrial Distributors Independent Representatives Team Selling Telemarketing Trade Shows Sales Strategy: Sales Channel Strategy

32. Increase Reach Gather Information about Customers Showcase New Products Conduct Surveys Enhance Corporate Image Obtain Feedback Service Existing Customers Sales Strategy: The Internet

33. Sales Channel Strategy:Industrial Distributors • Have Their Own Sales Force • May Represent One Manufacturer; Several Non-competing Manufacturers; Several Competing Manufacturers • Normally Carry Inventory

34. Sell complimentary products from non-competing manufacturers. Do Not Normally Carry Inventory Paid for Performance Reduced Control over Selling Effort Reduced Access to Customer Information Sales Strategy: Independent or Manufacturers’ Reps

35. Three Selling Situations New Task Selling Modified Resell Selling Situation Routine Resell Selling Situation Two Types of Team Selling Multilevel Selling Major Account Selling Sales Strategy: Team Selling

36. May replace field sales force for certain accounts When integrated with field sales force, activities include: Prospecting, Qualifying Leads, Conducting Surveys Taking Orders, Checking on Order Status, Handling Order Problems Following Up for Repeat Business Sales Strategy: Telemarketing

37. Generate Leads Test Market New Products Introduce New Products Close Sales Gather Competitive Information Service Existing Customers Enhance Corporate Image Sales Strategy: Trade Shows

38. SPECIAL TOPIC THE SALES BUDGET

39. The Budgeting Process Design Marketing Program (Advertising and Promotion) Forecast Sales Estimate Personal Selling costs needed to reach sales goals Revise Compare actual with plan

40. How Much to Spend • Affordability Approach • Workload (Productivity) Approach • Incremental Approach

41. Affordability Approach to Budgeting • Sales Cost as a Percentage of Revenue % = Sales Costs/Revenue X 100

42. Parts of the Sales Budget • Sales person’s total compensation • Salary • Commission • Benefits (Including SSN Tax) • Managers compensation • Travel expenses • Office expense • Cost of collateral (sometimes) • Training expenses (sometimes) • Other expenses (argue with the CFO!)

43. EXAMPLE The corporate plan dictates that cost of sales can be no more than 20% of revenue. Forecasted sales for next year is $36,000,000. How much money is in your budget? 0.20 X $36,000,000 = $7,200,000

44. Table 2-3 Sales Force Selling Expenses as a Percentage of Sales Sales Force Total Cost as a Percentage of Sales Sales Force Total Cost as a Percentage of Sales COMPANY SIZE INDUSTRY Under $5 Million (MM) 12.7% Business services 10.5 $5-$25 MM 14.0 Chemicals 3.4 $25-$100 MM 9.3 Communications 9.9 $100-$250 MM 7.4 Educational services 12.7 Over $250 MM 10.1 Electronics 12.6 Fabricated metals 7.2 PRODUCT OR Health services 13.4 SERVICE Hotels & other lodgings 11.4 Industrial products 10.4 Instruments 14.8 Industrial services 11.7 Machinery 11.3 Office products 10.8 Manufacturing 6.8 Office services 11.1 Office equipment 2.4 Consumer products 11.3 Paper and allied products 8.2 Consumer services 11.6 Printing and publishing 22.2 Retail 15.3 Trucking and warehousing 12.2 Wholesale (consumer goods) 11.2 Average 6.9%

45. If cost of sales as a percentage of revenue is 20%, what happens to the other 80%?

46. Affordability Approach • Given an amount of money to spend and a total sales goal, create a budget. • How many sales people? • How much compensation? • How much compensation for the sales manger? • How much for travel? • How much for office expense? • How much for training?

47. Percentage of Sales - Where to Start? • Compensation based on: • Industry & Community Standards • Competition • Travel estimated costs • Training requirements • Fixed expenses: • Office • Support • Collateral Material

48. Example Problem • Forecasted sales are $36,000,000. • Maximum Cost of Sales as a Percentage of Revenue is 20%. • Office and collateral expense is $80,000 • Sales Manager compensation is $150,000. • Sales person compensation at quota (including benefits) is $200,000. • Average cost of travel per sales person is $50,000 (none for sales manager). How many sales people can this budget support?

50. Productivity Approach • Start with Forecasted Sales Volume • Define Sales quota per sales person • How? • Calculated number of sales people needed • Define Sales Person total compensation • Define Sales Manager compensation • Define total non-comp related sales expense • (What’s that?) • Calculated total budget dollars and cost of sales as a percentage of revenue