Part III SALES FORCE ACTIVITIES Chapter 6: Sales Force Organization

Learning Objectives: Explain the various ways to organize sales force. Explain what a strategic accounts management program means. State the reasons for the growth in telemarketing. Tell why and when sales agents are utilized. Describe evolving trends in sales force organization.

Chapter Outline: Sales Force Organization. Strategic Account Management Program. Telemarketing. Independent Sales Agents. Emerging Sales Force Organization.

Structure Sales Force Organization: Impact Compensation Sales Management Role Performance Evaluation Recruiting/ Selection Training Program Figure 6-1: Decisions Affected by Sales Force Organization

Sales Force Organization: Topics Generalists Specialization Strategic Account Management Telemarketing Emerging Issues

Generalist versus Specialist Structures In general ,companies attempt to develop a sales force organization that is adaptable, efficient, effective. A sales force organization is adaptive if the company can react quickly to product and market changes without a major structural overhaul. Efficiency reflects the rate at which key sales activities, such as calls, demonstration, and proposals are performed. Effectiveness represents the buyer’s favorable reaction to the sales effort. (as example customer positive response to sales calls due to its superior customer knowledge . Four fundamental structures for organizing a sales force are: Generalist Product specialized Customer specialized Functional specialized

Strategic Account Programs: Survey Results Today In Five Years 49% 45% 24% 20% 18% 17% 16% 11% Customer Generalist Product Lines Functional Figure 6-2: How Sales Forces are Organized

Generalist Structures The most common and least complicated sales force organization is a generalist structure, also referred as geographic organizations, in which each salesperson sells the firm’s entire product line to all accounts and prospects, usually within a specific geographic area. The geographic area have small sales and minimal travel time. Salespersons spend a high percentage of their time face to face with customers. This method tends to be the highly efficient sales structures and works best when the product line consists of related products or services that appeal to a rather homogeneous group of buyers. In this method the salesperson have a big opportunity to go in depth of the local culture, economic, and competitive conditions. Disadvantages: salespersons focus on lines with which they are comfortable, neglecting the lines that are newer, more difficult to sell, but possibly more profitable.

Generalist Structures When so many products to sell, it is difficult to have the expertise needed to develop creative solution to customers’ problems. Salespersons may find themselves at a competitive disadvantage if they are asked to sell to customers with problems and needs that are diverse and complex. Salespersons may spend too much time with customers who are easy to sell, and are not profitable or have an opportunity to grow. The most complex problem are coordinating the sales force effort across different geographic areas. Many organization have decided that they need to specialize beyond simple geography, on one of this three things: (products, customers, activities)

General Structure Organization: Analysis Advantages Best for homogenous group of buyers. In-depth knowledge of the local culture, economic, and competitive conditions. Disadvantages Less knowledge of the product. Inability to create solutions for the customers problems. Focus on the easy to sell customers. 3

Figure 6-3: Geographical Sales Organization Sales Force Organization: Generalist National Sales Manager Central Regional Sales Manager Eastern Regional Sales Manager Western Regional Sales Manager Northeast District Sales Manager Mid-Atlantic District Sales Manager Southern District Sales Manager Connecticut Rhode Island Maine New Jersey Pennsy-lvania North Carolina South Carolina Vermont New York Delaware District of Columbia Georgia Alabama Massachusetts New York Virginia Maryland Mississippi Florida Figure 6-3: Geographical Sales Organization

Product Specialist Structures Product specialization: A product based specialization is most appropriate when a firm has a large, diverse, and complex line of products. Each sales person specializes by selling only a few of the products in the organization’s total product portfolio and reports to a management structure that is also focused on the same limited number of product lines. Coordination occurs at the highest levels in the organization .

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

Product Specialist Organization: Analysis 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

Customer Specialist Structures Customer Specialization: Referred also as vertical marketing, in which each salesperson or sales team sells the entire product line to select types of buyers. This type is used by companies as companies try to become more market focused.

Figure 6-5: Customer Specialized Sales Force Sales Force Organization: Customer Specialists National Sales Manager National Accounts Manager Eastern Regional Sales Manager Manager of Export Sales Northeast District Sales Manager Mid-Atlantic District Sales Manager Southern District Sales Manager Salesperson For Educational Institutions Salesperson for Retail Customers Salesperson for Government Agencies Salesperson for Bank Customers Salesperson for Manufacturers Salesperson for Wholesale Customers Figure 6-5: Customer Specialized Sales Force 1

Customer Specialist Organization: Analysis Advantages Consistent with market driven strategy Salespeople become customer experts Customer segments receive appropriate resources Disadvantages May conflict with marketing organization Product expertise may be lacking More expensive 4

Functional Specialization Structures Focuses on the activities or functions performed by customer contact people. Product and market heterogeneity and complexity may require a diverse set of skills and knowledge (used for large global organization).

Figure 6-6: Functional Specialization Sales Force Organization: Functional Specialists Division Marketing Manager Industry Sales Manager Systems Manager Administrative Manager Account Executives (Salespeople) System Reps (Technical Support) Market Administrative (Training & Installation) Figure 6-6: Functional Specialization 1

Functional Specialists: Analysis Advantages More functional focused. Ability to provide problem solutions. Disadvantages May conflict with marketing organization More expensive 4

Functional Specialists: Alternatives Companies New Customers American Express Gillette Retention Browning-Ferris Industries End-Users Lexmark International Sales Engineers 3M AT&T Service Consultants IBM McKesson Corporation 5

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 .

Strategic account management program Regardless of whether the sales force consists of specialists or generalists, one of the most significant changes now occurring in marketing is that many organizations are finding it necessary to develop strategic account management program in addition to their regular sales force. Strategic account management program is more than a selling strategy. It is a marketing philosophy directed at a select group of customers that account for a disproportionately large share of the seller’s total revenues. To success in managing new strategic accounts you should address two issues: Account selection Organizational structure

Strategic account management program 1. Strategic account selection: Which customers should be treated as a strategic account, many companies choose too many accounts to participate in the program, resulting in an over work for sales force , and under serviced customers. There is a tendency to focus on customer size, because a few portion of the largest customers are representing a big portion of company sales, and losing on of those customers is a disaster. On the other hand, size is not a good indicator that a customer wants this special type of relationship.

Strategic Accounts: What is Different about Strategic Accounts? Previous Approach New Strategic Account Business Plan Duration 3 – 6 months 2 – 3 years Structure of Business Plan Tactical promotional program Strategic business plan focused on growth and profitability Personnel Involvement Sales reps and purchasing agents Senior management from both companies Figure 6-7 : Changes in Joint Account Planning

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 desires a long-term, cooperative working relationship The customer expects specialized attention and service

Strategic Accounts: Common Problems with Account Selection Too many “strategic accounts” “We see them as strategic, but they don’t even see us on their radar.” Too much organizational effort directed towards big name accounts Not thinking enough about return on relationship investment No common process across the organization No tracking and reviewing of strategic account selection 8

Alternative Organization Models Strategic Accounts: Alternative Organization Models Existing Sales Force Low risk; little change Management Sell National Accounts Keeps management close to customer Separate Sales Force More aggressive; more expensive; alternative to sales management for promotion for sales staff Sales Teams Use when selling process is complex 8

Strategic Accounts: Alternative Organization Model Effectiveness Existing Sales Force Least effective Lowest market performance Sales Management Somewhat more effective Slightly better market performance Separate Sales Force Fairly effective Good Market Performance Cross-Functional Sales Teams Most effective Best Market Performance Table 6-1: Doing the Math on Account Management 8

Strategic Accounts Programs: Benefits Increased sale to national accounts Increased profits from national accounts Increased market share Improved customer communications coordination 91% 83% 74% 74% 30%

Strategic Accounts Programs: Insights from Strategic Account Executives “Until the customer tell us we’re a strategic supplier, I can’t believe that they are in fact a strategic account for us.” “Strategic accounts bring the opportunities to you, instead of you always having to try to push the ideas on them.” “If our products and services aren’t critical to our customer’s performance and results, it is silly to call them ‘strategic accounts’.”

Strategic Accounts Programs: Insights from Strategic Account Executives “Before a real strategic account would [make a particular decision], they would ask us for inputs, knowing our interests and theirs were aligned.” “The best strategic accounts are willing to open the door, allow us to help them. There is an ongoing invitation to bring expertise into their firm.”

Strategic Account Programs: Survey Results Are training programs for the strategic account manager different? Different training for strategic account managers No difference in training for strategic account managers or other sales staff 26% 37% 37% Provide no training for strategic account managers

Strategic Account Programs: Survey Results Do your strategic account managers carry an assigned sales quota? No Response Yes 3% No 68% 29%

Strategic Account Programs: Survey Results Do strategic account managers have formal authority over the rest of the sales organization? No Response May assemble temporary “virtual” sales teams that report directly to the strategic account manager 7% 24% Sales team reports directly to the strategic account manager 22% 47% No formal authority over others in the sales organization

Strategic Account Programs: Survey Results How do you measure the success of a strategic account program? Sales Volume 80% Customer Satisfaction 53% Profitability 45% Volume of Recurring Revenue Stream 29% Incremental Orders from Existing Accounts 22% Number of Customer with Strategic Account Agreements 11% Number of Transactions/Orders 6% Number of Products Shipped

Telemarketing Telemarketing: refers to customer contacts utilizing telecommunications technology for personal selling without direct , face to face contact.

Figure 6-8: The Scope of Telemarketing Activities Sales Force Organization: Scope of Telemarketing Activity Description Customer Service Companies provide customers with a number they can call if they have questions. Prospecting and Lead Qualification Firms are taking a proactive approach to prospecting by having telemarketers call prospects or qualify them for face-to-face selling. Account Management Selling secondary product lines or service small customers by phone, thereby freeing their salespeople to concentrate on larger customers and strategic product lines. Promotion Support Develop newspaper and magazine ads that feature either a local or an 800 number to get additional product information or place an order. Figure 6-8: The Scope of Telemarketing Activities

Sales Force Organization: Telemarketing Advantages and Challenges Advantages Low cost per sales call Profitably serve small to medium customers Speed/time saving of telephone ordering Challenges Acceptance by field salespeople Management Role of the Internet 10

Independent sales agents Independent sales agents: are hired to perform the selling function, they are not employees, but independent businesses given exclusive contracts to perform the selling function within specified geographic areas. They take neither ownership nor physical possession of the products they sell, and are always compensated by commission. Agents are often used to develop new markets. They are selling from 5 to 8 non competing but related product, that they are known fairly well, and sell to similar types of buyers.

Selecting a Sales Agent Three issues to consider before selecting the sales agent: Economic Consequences. Level of Control. Market Conditions.

Figure 6-9: Total Costs of Independent Agents vs. Own Sales Force Sales Force Organization: Economic Analysis of Sales Agents Independent Agents Total Selling Costs Own Sales Force Break-Even Sales Sales Volume Figure 6-9: Total Costs of Independent Agents vs. Own Sales Force

Selecting a Sales Agent Level of Control: Control of Sales Force VS. Control of Sales Agent.

Sales Force Organization: Market Conditions Favoring Sales Agents The market is fragmented and customers are difficult to find or understand. Buying is decentralized. Local knowledge and local distribution is important. The company is selling only a few products. There is a good potential sales agency who has significant marketing expertise in the industry. The company is not well known and has little equity in the market. The products are easily understood commodities that have been around for a long time. The selling cycle is short and orders are typically small. It is not necessary to tightly control the selling effort. Ongoing support activities are not important and the company does not need customer information. Figure 6-10: Market Factors Favoring the Use of Sales Agents

Sales Force Organization: Selecting a Sales Agency 1. Define the ideal market focus. 2. Identify compatible principles. 3. Specify the necessary technical background. LOCATING AGENTS: Rep. Directories Customer References Compatible Manufactures References from Current Agents Trade Shows

Emerging sales force organization issues Centralization versus decentralization Cross functional coordination Advantages: (share experience, speed up the production or selling process, safe time) Disadvantages: (conflicts, directed by more than one manager) Global account organization Sales team (bank of Palestine Master Card Program Adjustment ) Selling partners: not on the payroll, they sell and provide technical and operating support .

Global Account Success Keys The company’s value proposition must be right. Global account teams must be cross- functional Account teams must be driven from the top. A mindset of constant improvement is key.

V.P. Business Operations Sales Force Organization: Key Account Sales Teams at Ericsson Country President V.P. Business Operations Key Account Team Sales Director Director of Operations Director Product Support Global Accounts Director Account Managers Project Managers Product Managers Account Managers Account Coordinators Technical Support Engineers Account Coordinators Figure 6-11: Sales Team Organization at Ericsson

Sales Force Organization: Evaluating Organizational Structure Financial performance -- must consider BOTH costs and revenues Adaptability Integration -- subunits of sales organization must work in harmony External Internal New competitors Changing technology Modification to channel systems Industry life cycle Company goals Management philosophy Production capabilities Technical resources