Sales & Distribution ManagementMR412Semester IV, KIMDS

Sales- Evolution of sales Department Sales management- The Planning, Direction and Control ofPersonal Selling including Recruiting, Selecting, Equipping, Assigning, Routing, Supervising, Paying and Motivating as these tasks apply to the personal sales force.

Sales Management- An Introduction

What factors are prompting marketers to shift attention to Sales Management Globalisation Customer service Leadership Lower margin Longer and harder working hours and environment

Sales Management Objectives

Sales management Objectives Co. s viewpoint Sales volume Contribution to profit Continuing growth Top management Marketing Management Sales Management

Objectives translated into Specific goals

Make sure Goals of Corporate conform to Sales & Marketing initiative

Goals- are deliverables, expectations and the desired results Increase Sales activity Close more accounts Offer better proposals See more prospects

Goal setting process Growth in sales New Business New Product

All Goals should be SMART

Goals Should be SMART Specific Measurable Attainable Relevant Trackable

Sales Force What are Sales Force Objectives Is the Sales force large enough to accomplish the company objectives Is it organized along proper principles of specialization ( Territory, Market, product) Are there enough sales managers Does sales compensation level & structure provides adequate incentive and Reward Does the sales force show high morale, ability and effort Are the procedures adequate for setting quotas and evaluating performance Does co.'s sales force compare to competitor s

McKinsey 7S Strategy, structure and Systems- H/W of success Style, skills, Staff, Shared Values- S/W for Success Sales Planning- Sales Managers come up with marketing plan for individual Product lines, brands, channels, or customer groups

Sales Management- Introduction Sales Management and Financial results Sales- cost of sales= gross margin- expenses= Net Profits Sales exe as Coordinator Organizing and Coordination Planning and coordination Coordinating with other elements in marketing program Coordination with distributive network Coordination and implementation of overall marketing strategy

Sales management and Control Where are we now How did we get here Where are we going How do we get there

Sales Control- Informal & Formal Sales Control and Organisation

Learning Objectives To understand evolution, nature and importance of sales management To know role and skills of modern sales managers To understand types of sales managers To learn objectives, strategies and tactics of sales management To know emerging trends in sales management To understand linkage between sales and distribution management

Evolution, Nature and Importance of Sales ManagementEvolution of Sales Management Situation before industrial revolution in U.K. (1760AD) Situation after industrial revolutions in U.K., and U.S.A. Marketing function splits into sales and other functions like market research, advertising, physical distribution

What is Sales Management? One definition: The management of the personal selling part of a company s marketing function. Another definition: The process of planning, directing, and controlling of personal selling, including recruiting, selecting, equipping, assigning, supervising, paying, and motivating the personal sales force.

Nature of Sales Management Its integration with marketing managementHeadMarketing

ManagerPromotion

Manager Market Research

Manager Sales

Manager Market Logistics

Manager Customer Service

Relationship SellingTransactional Relationship Selling Value added Collaborative / Relationship / Partnering Selling Relationship Selling / /

Varying Sales Responsibilities / Positions / JobsSales Position Delivery salesperson Brief Description Examples Delivery of products to business Milk, newspapers to households customers or households. Also takes orders. Soft drinks, bread to retail stores. Behind counter in a garment shop Telemarketing salesperson takes Pharma products orders from orders over telephone nursing homes Outside order taker. Also Food, clothing products orders performs other tasks from retailers Provide information, build Medical reps. in pharma industry goodwill, introduce new products Technical information, assistance Steel, Chemical industries Inside order taker

Order taker (Response selling)

Sales support Missionary selling Technical selling

Order-getter (Creative, Problem- Getting orders from existing and Automobiles, refrigerators, solving, Consultative selling) new household consumers insurance policies Getting orders from business Software and business solutions customers, by solving their business and technology problems

Importance of Personal Selling and Sales Management The only function / department in a company that generates revenue / income The financial results of a firm depend on the performance of the sales department / management Many salespeople are among the best paid people in business It is one of the fastest and surest routes to the top management

Roles and Skills of a Modern Sales ManagerSome of the important roles of the modern sales manager are:A member of the strategic management team A member of the corporate team to achieve objectives A team leader, working with salespeople Managing multiple sales / marketing channels Using latest technologies (like CRM) to build superior buyer-seller relationships Continually updating information on changes in marketing environment

Skills of a Successful Sales Manager People skills include abilities to motivate, lead, communicate, coordinate, team-oriented relationship, and mentoring Managing skills consist of planning, organizing, controlling and decision making Technical skills include training, selling, negotiating, problem-solving, and use of computers

Types of Sales Managers / Levels of Sales Management PositionsCEO / President V. P. Sales / V. P. Marketing

Top-Level Sales Managers / Leaders

National Sales Manager Regional / Zonal / Divisional Sales Managers District / Branch / Area Sales Managers Middle-Level Sales Managers

First / Lower Level Sales Managers

Sales Trainee / Sales Person / Sales Representative

Sales Objectives, Strategies and TacticsThe main components of planning in a company are objectives, strategies and tactics. Their relationship is shown belowDecide / Set Objectives Develop Strategies Evolve Tactics / Action Plans

E.G. A company wants to increase sales of electric motors by 15 percent, as one of the sales objectives. (see next slide)

To illustrate the relationship between sales objectives, strategies and tactics, consider:Sales Goals / Objectives Marketing Strategy Sales and Distribution Strategy Tactics / Action plans

y

Increase sales volume by 15 percent

y

Enter export y markets y

Identify the countries Decide distribution channels

y y

Marketing / sales head to get relevant information Negotiate and sign agreements in 3-5 months with intermediaries

y

Penetrate existing domestic markets

y

y

Review and improve y salesforce training, motivation y and compensation Use effective and efficient y channels y

Add channels and members Train salespeople in deficient areas Train field salesmanagers in effective supervision Link sales volume quotas to the incentive scheme of the compensation plan

Emerging Trends in Sales Management Global perspective Revolution in technology Customer relationship management (CRM) Salesforce diversity Team selling approach Managing multi-channels Ethical and social issues Sales professionalism

Linking Sales and Distribution Management Either sales management or distribution management cannot exist, operate or perform without each other To achieve the sales goals of sales revenue and growth, the sales management plans the strategy and action plans (tactics), and the distribution management has the role to execute these plans This will be illustrated by considering some sales management actions and corresponding role of distribution management (in the next slide), as well as by discussing a few integrated cases given at the end of the book

Role of Distribution Management for some of the Sales Management Actions / TasksSales Management Actions / Tasks y Strategy for effective coverage of markets and outlets Distribution Management Role

y Follow call plan / beat plan y Make customer call productive y Use multi-channel approach y Prompt action at the customer interface level y If the problem persists, involve senior sales and service people

y Strategy for handling customer complaints

y Planning of local advertising and sales promotion

y Co-ordination with distribution channels y Responsibility of execution with distribution channels y Expenses are shared between the company and intermediaries

Key Learnings Sales management is defined as the management of the personal selling part of a company s marketing function Selling includes varying sales jobs like delivery salesperson, order taker, sales support person, and order getter Sales is the only function or department in an organization that generates revenue / income Skills of a successful sales manager include managing, technical and people Main components of sales planning are objectives, strategies, and tactics (or action plan) Either sales management or distribution management can not exist, operate or perform without each other

Personal Selling: Preparation and Process

Learning Objectives To understand psychology in selling, buying decision process and buying situations To learn communication skills, sales knowledge, and sales related marketing policies To understand personal selling process To learn about negotiation

Psychology in SellingStimulus (Sales Presentation) Buyers decision making process Response (buy or no buy)

If a sales person makes a presentation, the prospect 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

Buying Process of Consumers and Business BuyersFive stage model for household customers 1. Problem / need recognition Eight stage model for business buyers 1. Problem / need recognition 2. Characteristics and quantity determination 3. Specification development 4. Supplier search and qualification 5. Obtain and analyse supplier proposals 6. Evaluation and selection of suppliers 7. Selection of purchase order routine 8. Performance feedback and postpurchase evaluation

2. Information search / collection

3. Evaluate alternatives 4. Purchase decision 5. Post purchase behaviour

Buying Situations Faced ByHousehold customers Routine decision-making Limited decision-making Extensive decision-making Business Buyers New task / New purchase Modified rebuy / change in supplier Straight rebuy / Repeat purchase

Buying process and situations differ for household consumers and business buyers. Consumers / Buyers may skip or reverse some stages in buying process. E.G. A consumer buying toothpaste

Knowledge of Sales and Sales-related Marketing PoliciesSales Knowledge Company knowledge Product knowledge Customer knowledge Competitor knowledge Marketing Policies Pricing and Payment policies Product policies Distribution policies Promotional policies

Major reasons for giving above information / knowledge through training programmes to salespeople are: increase their self-confidence Meet customers expectations Increase sales Overcome competition

The Sales ProcessAs a part of selling activities, if salespeople follow the steps or phases shown below, their chances of success are far better.Prospecting & Qualifying Preapproach / Precall planning Follow-up & Service Presentation & Demonstration Overcoming Objections

Approach

Trail close / Closing the sale

The sequence of above steps may change to meet the sales situation in hand. Some of the above steps may not be applicable for selling to the trade We now discuss application of above steps to industrial selling

Prospecting It is identifying or finding prospects i.e. prospective or potential customers. Methods of prospecting or sales lead generation are: (1) referrals from existing customers, (2) company sources (website, ads., tradeshow, teleprospecting), (3) external sources (suppliers, intermediaries, trade associations), (4) salespersons networking, (5) industrial directories, (6) cold canvassing

Qualifying Companies qualify sales leads by contacting them by mail or phone to find their interests (or needs) and financial capacity. Leads are categorized as: Hot, Warm, and Cool

Preapproach Information gathering about the prospect. Sources of information: the Internet, industrial directories, government publications, intermediaries, etc. Precall planning Setting call objectives Tentative planning of sales strategy: which products, features and benefits may meet the customer needs

Approach Make an appointment to meet the prospect Make favourable first impression Select an approach technique: Introductory Customer benefit Product Question Praise The approach takes a few minutes of a call, but it can make or break a sale

Presentation and DemonstrationThere are four components: Understanding the buyer s needs Knowing sales presentation methods / strategies Developing an effective presentation Using demonstration as a tool for selling

We will examine each of the above points

Understanding the buyer s needs Firms and consumers buy products / services to satisfy needs To understand buyer s needs, ask questions and listen In business situations, problem identification and impact questions are important E.G. Have you experienced any problems on quality and delivery from the existing supplies? What impact the quality and delivery problems will have on your costs and customer satisfaction?

Knowing Sales Presentation Methods/StrategiesFirms have developed different methods / styles / strategies of sales presentation Stimulus response method / canned approach. It is a memorised sales talk or a prepared sales presentation. The sales person talks without knowing the prospect s needs. E.G. Used by tele-marketing people Formula method / formulated approach. It is also based on stimulus response thinking that all prospects are similar. The salesperson uses a standard formula AIDA (attention, interest, desire, and action). It is used if time is short and prospects are similar. Shortcomings are: prospects needs are not uncovered and uses same standard formula for different prospects.

Sales Presentation Methods (Continued) Need satisfaction methodInteractive sales presentation First find prospect s needs, by asking questions and listening Use FAB approach: Features, Advantages, Benefits Effective method, as it focuses on customers

Consultative approach

selling

method

/

Problem-solving

Salespeople use cross-functional expertise Firms adopt team selling approach It is used by software / consulting firms

Developing an Effective PresentationSome of the guidelines are: Plan the sales call Adopt presentation to the situation and person Communicate the benefits of the purchase Present relevant and limited information at a time Use the prospect s language Make the presentation convincing give evidence Use technology like multi-media presentation

Using Demonstration Sales presentation can be improved by demonstration Demonstration is one of the important selling tools EGs: Test drive of cars; demonstration of industrial products in use Benefits of using demonstration for selling are:Buyers objections are cleared Improves the buyer s purchasing interest Helps to find specific benefits of the prospect The prospect can experience the benefit

Overcoming Sales Objections / Resistances Objections take place during presentations / when the order is asked Two types of sales objections: Psychological / hidden Logical (real or practical) Methods for handling and overcoming objections: (a) ask questions, (b) turn an objection into a benefit, (c) deny objections tactfully, (d) third-party certificate, (e) compensation

Trial close and Closing the sale Trial close checks the attitude or opinion of the prospect, before closing the sale (or asking for the order) If the response to trial close question is favourable, then the salesperson should close the sale Some of the techniques used for closing the sale are: (a) alternative-choice, (b) minor points, (c) assumptive, (d) summary-of-benefits, (e) T-account, (f) special-offer, (g) probability, and (h) negotiation

Follow-up and Service Necessary for customer satisfaction Successful salespeople follow-up in different ways: For example,Check order details Follow through delivery schedule Visit when the product is delivered Build long-term relationship Arrange warranty service

Negotiation Salespeople, particularly in business to business selling, need negotiating skills When to negotiate? (a) When the buyer puts certain conditions for buying to the seller, (b) When agreement between the buyer and the seller is needed on several factors, (c) When the product is customised, (d) When the final price is to be decided How to prepare for negotiation? (a) planning, (b) building relationship, (c) purpose Styles of negotiation (a) I win, you lose, (b) Both of us win (or win-win style), (c) You win, I lose, and (d) Both of us lose

Key Learnings For understanding psychology in selling, study consumer or buyer behaviour, buying process and situations Salespeople are given knowledge of sales and relevant marketing policies in order to increase their self-confidence and sales, and meet customers expectations Typical steps in the sales process include prospecting and qualifying, preapproach, approach, presentation and demonstration, overcoming objections, trial close / closing the sale, follow-up and service Salespeople should know when to negotiate, how to prepare for negotiation and which style of negotiation to use

Sales Organisation Sales Organisation is a department of the Organisation which is established for the purpose of directing, coordinating and controlling the sales Organisation. Includes Centralisation Specialisation Staff position Marketing orientation Coordination Control

5 steps in setting sales organisation Defining the objective Sales, Profit, Growth

Delineating the necessary activities Qualitative and Quantitative

Grouping activities into jobs or positions Job description

Assigning personal to positions Providing coordination and control Formal(Job description) and Informal (force of personality) Organisation Chart and Organisation Manual

Factors determining structure of S.O Price of product Nature of Product Nature of Market Size of the enterprise Ability of executives Sales policy of the enterprise Distribution system Finance Number of products

Types of Sales org Structure Line Sales Organisation Line and Staff Sales Organisation Functional Sales Organisation Committee Sales Organisation

Field Organisation of Sales Department To facilitate the selling Task To improve chances of goal achievement by sales people

Centralization Versus decentralization in Sales Force Advantages of decentralized SF Higher sales volume absorbs higher fixed costs Reduction of geographical separation of sales executives Improved customer service Reduced need for and costs of territorial break in time Improved sales force morale Lower travel expenses

Scheme for dividing line authority in Sales Organisation By geographic area By products By customers or marketing channels

Geographic division of line authorityGeneral Sales Manager

Sales Personnel Director

Eastern Division SM

Director of Sales Training

Central Division Sales Manager Branch Sales Managers

Director of Sales promotion

Western Division Sales Manager Branch Sales Managers Sales Personnel

Director of Sales Analysis

Branch Sales Managers Sales Personnel

Sales Personnel

Product division of line authorityGeneral Sales Manager

Sales Manager Product 1

Sales personnel Director

Director of Sales Training

Director of Sales promotion

Director of Sales Analysis

Sales Manager Product II

Sales Personnel Product I

Sales Personnel Product II

Product division of line authorityGeneral Sales Manager

Sales Manager Product 1

Sales Manager Product II

Personnel Director

Training Director

Director of Sales promotion

Director of Sales Analysis

Personnel Director

Training Director

Director of Sales promotion

Director of Sales Analysis

Sales Personnel Product I

Sales Personnel Product II

Customer division of line authorityGeneral Sales Manager

Sales Manager Product 1

Manager Lumber Industry Sales

Sales personnel Director

Manager Construction Industry Sales

Director of Sales promotion

Manager Mining Industry Sales

Director of Sales Promotion and Advertising

Branch Sales Managers

Branch Sales Managers

Branch Sales Managers

Sales Personnel

Sales Personnel

Sales Personnel

Marketing Channel division of line authorityGeneral Sales Manager

Sales personnel Director

Director Sales Planning

Sales Promotion Manager

Advertising manager

Director of Customer Relations

Sales Manager Chain Store Sales Sales Personnel

Sales Manager Wholesale Sale Sales Personnel

Sales Manager Institutional Sales Sales Personnel

Export Sales Manager

Sales Personnel

Functions of Sales Organizations Planning function Sales forecasting Sales budgeting Selling policy

Administrative function Selecting salesmen Training salesmen Control of salesmen Remuneration of salesmen

Executive function Sales promotion Selling routine-execution of customer orders

Developing a sales Organisation Formal and informal organisations Horizontal and Vertical Organisations Centralised and Decentralised organisations Line and Staff components of organisations Size of the company

Field Sales Organisations Geographic Sales specialisation organisations Product based sales specialisation organisations Activity/Function based specialisation Hybrid sales organiastion Team based organisation

Effective Selling Nature of Sales Management Positions Sales manager District Sales manager Sales Executive

Functions of Sales Executive Operating Sales Force management Handling Relationship within department and trade Communicating and coordinating Reporting to senior

Planning Sales Program ,Sales organization and control

Qualities of Effective Sales Executives Ability to define the position s exact functions Ability to select and train subordinates Ability to utilize time efficiently Ability to allocate sufficient time for planning Ability to exercise skilled leadership

Relations with Top Management Relation with managers of Other Marketing activities With product department With promotion management With pricing management With distribution management

Compensation pattern for Sales Executives

Planning, Sales Forecasting, and Budgeting

Learning Objectives To understand strategic planning, its linkage to strategic marketing and marketing management To know how sales strategy is developed from marketing strategy To learn basic terms used in forecasting, forecasting approaches, and methods of sales forecasting To understand purposes and the process of sales budget

Strategic Planning Planning is deciding now what, how, and when we are going to do Strategic planning is deciding about the organisation s long-term objectives and strategies In a large organisation, planning is done at three or four organisational levels, as shown in the figure (in the next slide)

Planning In A Large OrganisationOrganisational Levels Corporate Organisation Structure Type of Planning Corporate Strategic PlanningSBU C

Corporate Office

Division / Business Unit / SBU Product

SBU A

SBU B

Divisional / SBU Strategic Planning Product / Operational Planning

Product x

Product y

Product z

For effective planning, operations, and control, a large multiproduct / multi-business firm divides its major products / services into divisions / strategic business units ( SBUs) Each SBU has a separate business, a set of competitors and customers, and a manager responsible for strategic planning, performance, and control

Role of Marketing in Organisational PlanningType of Planning Corporate strategic planning Role of Marketing Key Tasks Formal Name

Provide customer and competition Corporate information marketing Support customer orientation

Divisional / Provide customer and competition Strategic analysis marketing SBU Strategic Develop competitive advantage, target markets, value proposition, positioning planning Product / Evolve and implement marketing plan Marketing functional or including marketing-mix strategy, and sales management Operational strategy planning

Marketing and Sales Strategies Figure below shows how sales strategy is developed from marketing strategy SalesProduct / service strategy Target market strategy (Longterm) Marketing Strategy Marketing mix strategy (Shortterm) Price strategy promotion strategy

Advertising strategy Promotion / IMC* strategy

Personal selling / sales strategy

Public relations & Publicity strategy

Distribution strategy Direct marketing strategy

* IMC: Integrated Marketing Communication

Components of Sales Strategy Classifying market segments and individual customers within a target segmentEach firm should first decide on target market segments and if possible, to classify customers into high, medium, low sales & profit potentials Sales strategy is developed accordingly

Relationship strategyWhether a selling firm should use transactional, valueadded, or collaborative relationship depends on both the seller and the customer Each selling firm to decide which segments and individual customers respond profitably to collaborative relationship

Components of Sales Strategy (Continued) Selling MethodsThese are: (1) Stimulus response, (2) formula, (3) needsatisfaction, (4) team selling, (5) consultative Selection of appropriate selling method depends on relationship strategy

Channel StrategyThere are many sales / marketing channels. For example: company salesforce, distributors, franchisees, agents, the internet, brokers, discount stores Selection of a suitable channel depends on both the buyer and the seller, products / services, and markets

Basic Terms Used in Sales Forecasting Market demand for a product or service is the estimated total sales volume in a market (or industry) for a specific time period in a defined marketing environment, under a defined marketing program or expenditure. Market demand is a function associated with varying levels of industry marketing expenditure. Market (or industry) forecast (or market size) is the expected market (or industry) demand at one level of industry marketing expenditure

Basic Terms (Continued) Market potential is the maximum market (or industry) demand, resulting from a very high level of industry marketing expenditure, where further increases in expenditure would have little effect on increase in demand Company demand is the company s estimated share of market demand for a product or service at alternative levels of the company marketing efforts (or expenditures) in a specific time periodFig. Market Demand FunctionsMarket demand

Market Potential Market Forecast Market Minimum

Industry marketing expenditure

Basic Terms (Continued) Company sales potential is the maximum estimated company sales of a product or service, based on maximum share (or percentage) of market potential expected by the company Company sales forecast is the estimated company sales of a product or service, based on a chosen (or proposed) marketing expenditure plan, for a specific time period, in a assumed marketing environment Sales budget is the estimate of expected sales volume in units or revenues from the company s products and services, and the selling expenses. It is set slightly lower than the company sales forecast, to avoid excessive risks

Forecasting Approaches Two basic approaches:Top-down or Break-down approach Bottom-up or Build-up approach

Some companies use both approaches to increase their confidence in the forecast

Steps followed in Top-down / Break-down Approach Forecast relevant external environmental factors Estimate industry sales or market potential Calculate company sales potential = market potential x company share Decide company sales forecast (lower than company sales potential because sales potential is maximum estimated sales, without any constraints)

Steps followed in Bottom-up / Build-up Approach Salespersons estimate sales expected from their customers Area / Branch managers combine sales forecasts received from salespersons Regional / Zonal managers combine sales forecasts received from area / branch managers Sales / marketing head combines sales forecasts received from regional / zonal managers into company sales forecast, which is presented to CEO for discussion and approval

Sales Forecasting MethodsQualitative Methods Executive opinion Delphi method Salesforce composite Survey of buyers intentions Test marketing Quantitative Methods Moving averages Exponential smoothing Decomposition Nave / Ratio method Regression analysis Econometric analysis

Executive opinion method Most widely used Procedure includes discussions and / or average of all executives individual opinion Advantages: quick forecast, less expensive Disadvantages: subjective, no breakdown into subunits Accuracy: fair; time required: short to medium (1 4 weeks)

Delphi method Process includes a coordinator getting forecasts separately from experts, summarizing the forecasts, giving the summary report to experts, who are asked to make another prediction; the process is repeated till some consensus is reached Experts are company managers, consultants, intermediaries, and trade associations

Delphi Method (Continued) Advantages: objective, good accuracy Disadvantages: getting experts, no breakdown into subunits, time required: medium (3/4 weeks) to long (2/3 months)

Salesforce composite method An example of bottom-up or grass-roots approach Procedure consists of each salesperson estimating sales. Company sales forecast is made up of all salespersons sales estimates Advantages: Salespeople are involved, breakdown into subunits possible Disadvantages: Optimistic or pessimistic forecasts, medium to long time required Accuracy: fair to good (if trained)

Survey of Buyers Intentions Method Process includes asking customers about their intentions to buy the company s products and services Questionnaire may contain other relevant questions Advantages: gives more market information, can forecast new and existing products, good accuracy Disadvantages: some buyers unwilling to respond, time required is long (3-6 months), medium to high cost

Test Marketing Method Methods used for consumer market testing: full blown, controlled, and simulated test marketing Methods used for business market testing: alpha and beta testing

Test Marketing Method (Continued) Advantages: used for new or modified products, good accuracy, minimizes risk of national launch Disadvantages: Competitors may disturb if some methods are used, medium to high cost, medium to long time required

Moving Average Method Procedure is to calculate the average company sales for previous years Moving averages name is due to dropping sales in the oldest period and replacing it by sales in the newest period Advantages: simple and easy to calculate, low cost, less time, good accuracy for short term and stable conditions Disadvantages: can not predict downturn / upturn, not used for unstable market conditions and long-term forecasts

Exponential Smoothing Method The forecaster allows sales in certain periods to influence the sales forecast more than sales in other periods Equation used: Sales forecast for next period=(L)(actual sales of this year)+(1L)(this year s sales forecast), where (L) is a smoothing constant, ranging greater than zero and less than 1 Advantages: simple method, forecaster s knowledge used, low cost, less time, good accuracy for short term forecast Disadvantages: smoothing constant is arbitrary, not used for long-term and new product forecast

Decomposition Method Process includes breaking down the company s previous periods sales data into components like trend, cycle, seasonal, and erratic events. These components are recombined to produce sales forecast Advantages: Conceptually sound, fair to good accuracy, low cost, less time Disadvantages: complex statistical method, historical data needed, used for short-term forecasting only

Naive / Ratio Method Assumes: what happened in the immediate past will happen in immediate future Simple formula used:Sales forecast for next year ! Actual sales of this year v Actual sales of this year Actual sales of last year

Advantages: simple to calculate, low cost, less time, accuracy good for shortterm forecasting Disadvantages: less accurate if past sales fluctuate

Regression Analysis Method It is a statistical forecasting method Process consists of identifying causal relationship between company sales (dependent variable, y) and independent variable (x), which influences sales If one independent variable is used, it is called linear (or simple) regression, using formula; y=a+bx, where a is the intercept and b is the slope of the trend line In practice, company sales are influenced by several independent variables, like price, population, promotional expenditure. The method used is multiple regression analysis Advantages: Objective, good accuracy, predicts upturn / downturn, short to medium time, low to medium cost Disadvantages: technically complex, large historical data needed, software packages essential

Econometric Analysis Method Procedure includes developing many regression equations representing (i) relationships between sales and independent variables which influence sales, and (ii) interrelationships between variables. Forecast is prepared by solving these equations Computers and software packages are used Advantages: Good accuracy of forecasts of economic conditions and industry sales Disadvantages: need expertise & large historical data, medium to long time, medium to high cost

How to Improve Forecasting Accuracy? Sales forecasting is an important & difficult task Following guidelines may help in improving its accuracyUse multiple (2/3) forecasting methods Select suitable forecasting methods, based on application, cost, and available time Use few independent variables / factors, based on discussions with salespeople & customers Establish a range of sales forecasts intermediate, and maximum Use computer software forecasting packages minimum,

What is a Sales Budget? It includes estimates of sales volume and selling expenses Sales volume budget is derived from the company sales forecast generally slightly lower than the company sales forecast, to avoid excessive risks Selling expenses budget consists of personal selling expenses budget and sales administration expenses budget Sales budget gives a detailed break-down of estimates of sales revenue and selling expenditure

Purposes of the Sales Budget Planning Coordination Control

Sales Budget Process Many firms follow a process for preparation of annual sales and company budgets. It generally includes:Review past, current, and future situations Communicate information to all managers on budget preparation guidelines, formats, timetable Use build-up approach, starting with first-line sales managers Get approval of sales budget from top management Prepare budgets of other departments

Key Learnings Strategic planning is deciding about the organization s longterm objectives and strategies Strategic marketing has a role at divisional or strategic business unit (SBU) level of strategic planning by providing market information and developing competitive advantage, target markets, value proposition Sales strategy is developed from marketing strategy through marketing-mix and promotional strategies Components of sales strategy includes classification of market segments / customers, relationship strategy, selling methods, & channel strategy

Key Learnings (Continued) Two basic approaches of forecasting are: top-down (or breakdown), and bottom-up (or build-up) Sales forecasting methods are broadly classified as: qualitative and quantitative Qualitative methods include executive opinion, delphi method, salesforce composite, survey of buyers intentions, test marketing Quantitative methods consist of moving averages, exponential smoothing, decomposition, nave/ratio, regression analysis, econometric analysis Sales budget gives a detailed estimates of sales volume and selling expenses. Its purposes are planning, coordination, and control

Management of Sales Territories and Quotas

Learning Objectives To understand the concept of and reasons for sales territories To learn designing sales territories and assigning salespeople To know territory coverage, including routing, scheduling, and time management To understand objectives and types of sales quotas To learn the methods of setting sales quotas To get insight into setting and administration of sales quotas

Sales Territories A sales territory consists of existing and potential customers, assigned to a salesperson Most companies allot salespeople to geographic territories, consisting of current & prospective customers

Major Reasons / Benefits of Sales Territories Increase market / customer coverage Control selling expenses and time Enable better evaluation of salesforce performance Improve customer relationships Increase salesforce effectiveness Improve sales and profit performance

Procedure for Designing Sales Territories Select a control unit* Find location and potential of present and prospective customers within control units** Decide basic territories by using Build-up method, Or Break-down method *A control unit is a geographical territorial base **Unnecessary & expensive for consumer products

Procedure in Build-up Method Decide customer call frequencies Calculate total customer calls in each control unit Estimate workload capacity of a salesperson Make tentative territories Develop final territories Objective is to equalise the workload of salespeople

Procedure in Breakdown Method Estimate company sales potential for total market Forecast sales potential for each control unit Estimate sales salesperson volume expected from each

Make tentative territories Develop final territories Objective is to equalise sales potential of territories

Assigning Salespeople to TerritoriesSales Manager should consider two criteria: (A)Relative ability of salespeople Based on key evaluation factors: (1) Product knowledge, (2) market knowledge, (3) past sales performance, (4) communication, (5) selling skills

(B) Salesperson s Effectiveness in a Territory Decided by comparing social, cultural, and physical characteristics of the salesperson with those of the territory Objective is to match salesperson to the territory

Management of Territorial Coverage It means: How salesperson should cover the assigned sales territory It includes three tasks for a sales manager: Planning efficient routes for salespeople Scheduling salespeople s time Using time-management tools

Routing Routing is a travel plan used by a salesperson for making customer calls in a territory Benefits of or Reasons for routing: Reduction in travel time and cost Improvement in territory coverage Importance of routing depends on the application: Nature of the product Important for FMCG Type of jobs of salespeople Important for drivercum-salesperson job, but creative selling job needs a flexible route plan

Procedure for Setting up a Routing Plan Identify current and prospective customers on a territory map Classify each customer into high, medium, or low sales potential Decide call frequency for each class of customers Build route plan around locations of high potential customers Computerised mathematical models are developed Commonly used routing patterns are:

Base (B)

C 1

B B

C 5

C 4

C 3

C 2

Straight line / Hopscotch

Circular

Clover Leaf

Scheduling Scheduling is planning a salesperson s visit time to customers. It deals with time allocation issue How to allocate salesperson s time? Sales manager communicates to salesperson major activities and time allocation for each activity Salesperson records actual time spent on various activities for 2 weeks Sales manager and salesperson discuss and decide how to increase time spent on major activities Companies specify call norms for current customers, based on sales and profit potentials, and also for prospective customers

Time Management ToolsTo help outside salespeople* to manage their time efficiently and productively, the tools available are: High-tech equipment like laptop computers and cellular phones Inside salespeople to provide clerical support, technical support, and for prospecting, and qualifying, as they remain within the company Outside salespeople can then spend more time getting more orders & building relationships with major customers *Outside salespeople travel outside the organisation

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 Marketing / sales units are regions, branches, territories, salespeople, and intermediaries Generally, company sales budget is broken down to sales quotas for various marketing units 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 Organisations set many types of sales quotas: (1) sales volume, (2) financial, (3) activity, (4) combination Sales volume quotas For effective control, sales volume quota should be set for the smallest marketing units, such as salesperson, districts / branches, product items / brands Sales volume quotas can be stated in (a) rupees / dollars, (b) units, or (c) points Rupees / dollars sales volume quotas are appropriate when salespeople are required to sell many products

Sales Volume Quotas (Continued) Unit sales volume quotas are suitable when Salespeople are selling a few products Prices of the product fluctuate rapidly Price of each product / service is high Point sales volume quotas are appropriate when the company wants salespeople to sell products that contribute more to profits

Financial Quotas Financial quotas control (a) gross margin or net profits, and (b) expenses of marketing units Gross-margin / Net-profit quotas Calculate gross margin by subtracting cost of goods sold (i.e. cost of manufacturing) from sales volume. Sales managers are not responsible for cost of manufacturing Net profit quotas are generally accepted by sales mangers as it is calculated by subtracting direct selling expenses from the gross margin Expense quotas In many companies, expense quotas are stated as a percentage of sales Expense quotas to be administered with flexibility, to make salespeople cost conscious, allowing reasonable expenses

Activity 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 Percent Weight Quota (Importance) 90 89 125 Total 3 2 1 6 Percent Quota x Weight 270 178 125 573

Sales Volume (Rs) Receivables (days) New Customers (Nos)

5,00,000 4,50,000 45 04 50 05

Total point score=573/6=95.5 for a salesperson Typically use points as a common measure to resolve the problem of different measures used by various types of quotas

Methods for Setting Sales QuotasSeveral methods are used for establishing sales quotas In practice, companies use more than one of the following methods to increase their confidence in sales quotas Total market estimates Territory potential Past sales experience Executive judgement Salespeople s estimates Compensation plan We shall briefly discuss each of the above methods

Total Market Estimates Method The Process followed by established companies is as under:1) Estimate next year s total market demand, or industry sales forecast, using sales forecasting methods 2) Decide the company s estimated market share for next year 3) Company s next year sales forecast= (1) x (2) 4) Find each territory s percentage share out of the total company sales in the previous year 5) Territory sales quota = (3) x (4)

Territory Potential Method 1) 2) The procedure followed by new companies is as under: Estimate next year s industry sales forecast or market potential, using sales forecasting methods Estimate multiple factor index (MFI) for each territory, based on factors that influence sales of the product. These factors are given weights corresponding to the degree of sales opportunity. Industry sales forecast in a territory (or territory market potential=(1)x(2) Territory sales quota = (3) x estimated market share of the company in the territory

3) 4)

Past Sales Experience Method The process consists of taking past one year s sales (or an average of previous 3 to 5 year s sales), adding an arbitrary percentage (or a percentage by which the market is expected to grow), and thus setting each territory sales quota The assumption that future sales are related to past sales may not be always correct This method should not be the only method used Past sales should be one of the factors used for deciding sales quotas

Executive Judgement MethodSenior executives use their judgement when the product, territories, and the company are new or very little market information is available Executives predict company sales budgets and also territory sales quotas This method should generally be used along with other methods

Salespeople s Estimate MethodSome firms ask their salespeople to set their own quotas Many salespersons either set very high or too low sales quotas

Salespeople s Estimate Method (Continued)For setting proper quotas, many sales managers use 2 or 3 of above methods, discuss with salespersons to get their inputs, and decide sales quotas

Compensation Plan MethodSome organizations set quotas to fit with their sales compensation plan E.G. A company wants to pay a monthly salary of Rs 5000, and a commission of 3% on monthly sales above Rs 1,00,000. The quota of Rs 1,00,000 is set in such a way that salesperson would find it very difficult to cross total compensation of Rs 8000 per month (5000+3000) Sales quotas should not be based only on this method, because it would put the cart before the horse

Insight into Setting & Administration of Sales Quotas Set realistic quotas Understand problems in setting quotas Ensure salespeople understand quotas By allowing salespeople to participate in the process By continuous feedback to salespeople on their performance compared to quotas Have flexibility in administering quotas Change quotas in cases of major changes in market demand or company strategies Use monthly or quarterly quotas for incentives and annual quotas for performance evaluation Select a few quotas that have relationships with marketing environment and sales situations

Key Learnings A sales territory consists of existing and prospective customers, assigned to a salesperson While assigning salespeople to territories, sales manager should consider relative ability of salespeople and salesperson s effectiveness in the territory Management of territorial coverage includes routing, scheduling, and time-management tools. Routing is a travel plan used by a salesperson for making customer calls in a territory Scheduling is planning a salesperson s visit time to customers, based on sales and profit potentials of customers

Key Learnings (Continued) Time management tools available to outside salespeople are high-tech equipment and inside salespeople Sales quotas are sales goals or targets set by a company for its marketing units like regions, territories, salespeople Firms set many types of quotas like sales volume, financial, activity, and combination of above Companies use more than one of the several methods used for setting sales quotas. These are: total market estimates, territory potential, past sales experience, executive judgement, salespeople s estimates, and compensation plan Companies should select a few quotas, which should be realistic and should be administered with flexibility