ORGANIZATION AND COMPENSATION OF THE SALES FORCE

I. ORGANIZING THE SALES FORCE 5

Generalist versus Specialist Structures Sales force organizational structure vary from: To generalist structures where each salesperson sells all products to all customers within a particular geographic area . To specialist or highly specialized sales forces ,where teams of salespeople focus on specific products, markets, or functions. Specialization presents important challenges in terms of coordination, integration, and higher expenses .

Organization: Geographical Organizations Advantages Tends to achieve lowest costs Travel time and expenses are minimized Sales Administration and overhead costs are kept low Disadvantages It does not provide any benefits associated with specialization of labor 3

Geographical Sales Organization National Sales Manager Central Eastern Western Regional Regional Regional Sales Manager Sales Manager Sales Manager Northeast Mid-Atlantic Southern District District District Sales Manager Sales Manager Sales Manager Connecticut New Pennsy- lvania North South Maine and Rhode Jersey Carolina Carolina Island District of Vermont New York Delaware Georgia Alabama Columbia Massach usetts New York Virginia Maryland Mississippi Florida Geographical Sales Organization

Organization: Product Specialization Advantages Allows focusing of sales effort Expertise developed in limited number of products Disadvantages More expensive to operate May result in duplication of sales calls to clients 3

Figure 6-4: Product Specialized Sales Force Sales Force Organization: Product Specialists National Sales Manager Eastern Regional Sales Manager Northeast District Sales Manager Mid-Atlantic District Sales Manager Southern District Sales Manager Printer Equipment Salesperson Server Salesperson Minicomputer Salesperson Programmable Calculator Salesperson Copier Salesperson Large Computer Salesperson Figure 6-4: Product Specialized Sales Force 1

Organization: Customer Specialization Advantages Consistent with market driven strategy Salespeople become customer experts Disadvantages More expensive Product expertise may be lacking 4

Customer Specialized Sales Force National Sales Manager National Eastern Manager Accounts Regional of Manager Sales Manager Export Sales Northeast Mid-Atlantic Southern District District District Sales Manager Sales Manager Sales Manager Salesperson Salesperson Salesperson Salesperson for Educational Institutions for Retail for Government for Bank Customers Agencies Customers Salesperson Salesperson for Manufacturers for Wholesale Customers Customer Specialized Sales Force 1

Organization: Functional Specialization Focus on phases in customer relationship: Initial sales Follow-up technical support and service Promotion efforts specialist 5

Functional Specialization Division Marketing Manager Industry Sales Systems Administrative Managers Manager Manager Account Executives Systems reps Market (salespeople) (technical support) Administration (training and installation) Functional Specialization 1

Sales Force Organization There is no one best way to organize the sales force , and companies are experimenting with many different forms in order to compete profitably . A company should start by examining its customers and looking at its organization from the customer’s perspective .

WHO ARE STRATEGIC ACCOUNTS? WHEN A CUSTOMER PURCHASES A SIGNIFICANT VOLUME AND EXHIBITS ONE OR A COMBINATION OF THE FOLLOWING: MULTIPLE PEOPLE ARE INVOLVED IN THE BUYING PROCESS PURCHASING IS CENTRALIZED THE CUSTOMER DESRIES A LONG-TERM, COOPERATIVE WORKING RELATIONSHIP THE CUSTOMER EXPECTS SPECIALIZED ATTENTION AND SERVICE

II. COMPENSATING THE SALES FORCE 5

Introduction Compensation in the global market is an extremely important managerial area This is because the compensation plan: Helps attract potential salespersons Impacts a salesperson’s motivation Is a determinant of status and value Determines lifestyle and purchasing power

In Global Market Compensation package is complex and affected by multiple forces: A balance between company policies and country-specific elements Total compensation package includes financial Salary, commission, bonus, stock options, benefits and non-financial incentives Awards, recognition, vacation, and promotion

Compensation Plans Hard to compare compensation plans because of their differences Lower salary, but higher deferred components Cannot simply transfer a compensation plan from one culture to another What works in one culture will not work in another! Compensation should motivate sales force to accomplish goals set by management Compensation may be changed to meet firm goals

Three Types of Compensation Plans Straight Salary Straight Commission Combination Plan

1. Straight Salary Salesperson paid a set amount of money based upon hours or days worked Often adopted when salesperson must devote significant amounts of time to other duties Market research, customer service, administration Simple to administer by sales manager But, no direct link between performance and reward! More commonly used in Europe and may be difficult to change by global sales managers

Dominant market share in mature, stable industry TYPICAL PROFILE OF A STRAIGHT SALARY COMPANY Dominant market share in mature, stable industry Highly defined and stable customer base Strongly centralized and closely managed selling effort Significant number of house accounts Highly team-oriented sales effort Service versus selling emphasis

2. Straight Commission Adopted by performance-oriented firms that pay salesperson for their achievements Each person is paid a percentage of their total sales Easy to evaluate performance Plans encompass an element of insecurity Not believed acceptable in some cultures, like EU Some evidence of acceptance in Japan Can lead salesperson to shirk duties or pressure customers to buy

Low barriers to entry into the job PROFILE OF A COMMISSION PLAN COMPANY Low barriers to entry into the job Limited corporate cash resources Small entrant into an emerging market or market segment High risk reward sales force culture Undefined market opportunity or customer base Inability to set quotas or other performance criteria Volume-oriented business strategy

3. Combination Pay Plan The combination plan is the most popular Employed by more than 80% of US firms May appear in many forms: Salary, commission, individual and group bonuses Basic security bestowed by set salary Motivation introduced by commission/bonus Combination plans more time consuming for sales managers to oversee

Numerous types of combination salary plans exist Numerous types of combination salary plans exist. The more popular plans are: Salary and commission Salary and bonus: individual or group bonus Salary, commission, and bonus: individual or group bonus

PROFILE OF A COMBINATION-PAY PLAN COMPANY Established company with growth potential, many products, and active competition Need to direct a complex set of behaviors Need for a variable pay component that will ensure top performers are rewarded commensurately

Discussion Questions Which pay plan would work best for a software firm that is a market leader?

Sales Contests Sales contests are short-term incentive programs implemented to motivate salespersons to achieve specific goals or activities For sales contests to be successful: Objectives must be specific and clearly defined Contest theme must be exciting and clearly communicated Each salespersons must believe they can win Awards must be attractive to participants Contest must be promoted and managed properly

Sales Contest Elements Contest Objectives To increase total and product sales most common Sales force must be given sufficient time All contest information and rules must be clear Theme Contests receive a theme to create excitement Chance of winning Compete against self, others, or as a team? In U.S. salesperson has about a 40% chance of winning

Types of Rewards Sales contests can offer many types of reward in the form of: Cash, prizes, or travel Perceived value very important as it must be of sufficient value to motivate additional effort Promotion of contest important Launched as a special event with handouts Large scorecards to communicate progress Newsletter articles or interim prizes can keep motivation up

Sales Contest Concerns A number of concerns have been raised about sales contests When not properly designed contests take a lot of managerial time to administer Improper contests can actually de-motivate Do sales contests generate additional sales? Should sales force be paid twice for doing job? If contests are for short-term, then why have a “never-ending” sales contest?

COMPENSATION IS MORE THAN MONEY Any type of sales organization can reward sales performance in three fundamental and interrelated ways: 1. Direct financial rewards. 2. Career advancement and personal development opportunities. 3. Nonfinancial compensation.

Non-Financial Incentives Human needs require approaches other than compensation to remain satisfied Ability to grow Recognition programs Salesperson of the year, President’s Club Opportunity to travel Educational assistance

SALES FORCE EXPENSES Expense plans have the same basic objectives as a compensation system, that is, to motivate the salesperson’s behavior in terms of membership, performance, and attendance.

Types of Expense Plans: The company pays all expenses. The salesperson pays all expenses. The company partially pays expenses.

FRINGE BENEFITS Five basic classifications of salespeople’s benefits and services are: Benefits that are required legally Pension and retirement programs Nonworking time Insurance Miscellaneous services