Sales And Distribution Management


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Sales And Distribution Management

  1. 1. SALES AND DISTRIBUTION MANAGEMENT Unit I: Definition, Objectives and Scope, Role of Sales Management in Marketing Management, Recent trends in Sales Management Unit I: INTRODUCTION Evolution 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 management • • Relationship Selling Transactional Value – added Relationship /Collaborative / Partnering Relationship / Selling Selling Relationship / Selling
  2. 2. 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 Manager Some 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
  3. 3. 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 Positions CE O/ V. P. Sales / V. P. Marketing National Sales Manager Regional / Zonal / Divisional Sales Managers District / Branch / Area Sales Managers Sales Trainee / Sales Person / Sales Representative Sales Objectives, Strategies and Tactics The main components of planning in a company are objectives, strategies and tactics. Their relationship is shown below E.G. A company wants to increase sales of electric motors by 15 percent, as one of the sales objectives. (see next slide) 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
  4. 4. Unit II: Sales Organization, Type of sales Organizational Structures, Analysis of Market and Sales Potential, Sales Quotas, Sales Territories and Sales Budgets. Unit II: Sales Organization Concepts of Sales Organisation • A sales organisation assists the sales manager to carry out needed tasks efficiently and effectively to achieve results • The basic concepts of the sales organisation are: • Degree of centralisation • Degree of specialisation • Line or staff positions • Market orientation • Effective co-ordination Basic Types of Sales Organisations Sales organisations are generally classified into four basic types: • Line Organisation • Line and staff organisation • Functional organisation • Horizontal organisation We shall discuss main characteristics, advantages, and disadvantages of each type of sales organisation Line Organisation Characteristics: Specialist staff managers are available for senior marketing / sales managers. Staff managers’ role is to assist / advise line managers. Used in medium and large size organisations Advantages: Better marketing decisions, superior sales performance Disadvantages: High cost and coordination, slower decision making, conflict may arise if staff managers’ role is not clear
  5. 5. Head-Marketing Marketing Research Promotional Customer Service Sales Manager Manager Manager Manager Area Sales Area Sales Area Sales Manager-1 Manager-1 Manager-1 Salespeople Salespeople Salespeople Line and Staff Organisation Characteristics: Specialist staff managers are available for senior marketing / sales managers. Staff managers’ role is to assist / advise line managers. Used in medium and large size organisations Advantages: Better marketing decisions, superior sales performance Disadvantages: High cost and coordination, slower decision making, conflict may arise if staff managers’ role is not clear Head-Marketing Marketing Research Promotional Customer Service Sales Manager Manager Manager Manager Area Sales Area Sales Area Sales Manager-1 Manager-1 Manager-1 Salespeople Salespeople Salespeople
  6. 6. Functional Organisation Characteristics: Each functional specialist has line responsibility over salespeople. Used by a large firm with many products / market segments, minimising line authority to functional managers Advantages: Qualified specialists guide salesforce, simple to administer Disadvantage: confusion due to more managers giving orders to salesforce Head-Marketing Marketing Promotional Customer Sales Manager Research Manager Service Area Sales Manager #4 Salespeople Horizontal Organisation Characteristics: Removes management levels & departmental boundaries. Except planning team, all others are members of cross-functional teams. Used by firms having partnering relationships with customers. Advantages: Reduction in supervision, unnecessary tasks, & cost; Improved efficiency and customer responses.
  7. 7. Analysis of Market and Sales Potential
  8. 8. 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 • 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
  9. 9. 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
  10. 10. 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 Percent Quota (Importance) Quota x Weight Sales Volume 5,00,000 4,50,000 90 3 270 (Rs) Receivables 45 50 89 2 178 (days) New 04 05 125 1 125 Customers (Nos) Total 6 573 • 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 Quotas • Several 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
  11. 11. 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 • The procedure followed by new companies is as under: 1) Estimate next year’s industry sales forecast or market potential, using sales forecasting methods 2) 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. 3) Industry sales forecast in a territory (or territory market potential=(1)x(2) 4) Territory sales quota = (3) x estimated market share of the company in the territory 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 Method • Senior 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
  12. 12. Salespeople’s Estimate Method • Some 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 Method • Some 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
  13. 13. 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 volume expected from each salesperson • Make tentative territories • Develop final territories Objective is to equalise sales potential of territories
  14. 14. Assigning Salespeople to Territories Sales 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 driver-cum- 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:
  15. 15. 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 Tools To 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
  16. 16. 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
  17. 17. The Sales Process As a part of selling activities, if salespeople follow the steps or phases shown below, their chances of success are far better. • 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
  18. 18. 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 Demonstration There 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/Strategies Firms 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
  19. 19. • 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. • Need – satisfaction method • Interactive 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 selling method / Problem-solving approach • Salespeople use cross-functional expertise • Firms adopt team selling approach • It is used by software / consulting firms Developing an Effective Presentation Some 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
  20. 20. 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