1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (1) 5 Module 5 Sales Organization Structure and Salesforce Deployment

1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (2) 5 Sales Organization Concepts Sales Organization Concepts Salesforce Specialization Continuum (Figure 5.1) GENERALISTS All selling activities and all products to all customersSPECIALISTS Certain selling activities for certain products for certain customers Some specialization of selling activities, products, and/or customers

1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (3) 5 Sales Organization Concepts Sales Organization Concepts Centralization Degree to which important decisions and tasks are performed at higher levels in the management hierarchy.

1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (4) 5 Span of Control vs Management Levels Span of Control vs Management Levels (Figure 5.2) Span of Control Flat Sales Organization Management Levels District Sales Manager District Sales Manager District Sales Manager District Sales Manager District Sales Manager National Sales Manager Span of Control Tall Sales Organization Management Levels District Sales Manager District Sales Manager District Sales Manager District Sales Manager District Sales Manager District Sales Manager Regional Sales Manager Regional Sales Manager National Sales Manager

1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (5) 5 Line vs Staff Positions Line vs Staff Positions (Figure 5.3)

1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (6) 5 Selling Situation Contingencies Consideration of Specialization –Empirical support for the notion that: A generalized sales force should be used when selling effort is more important than selling skill A specialized sales force should be used when selling skill is more important than selling effort Consideration of Environmental Characteristics, Task Characteristics, and Performance Objectives Consideration of Customer Needs and Product Complexity

1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (7) 5 Selling Situation Contingencies Selling Situation Contingencies Customer and Product Determinants of Salesforce Specialization (Figure 5.4) Customer Needs Similar Customer Needs Different Simple Product Offering Complex Range of Products Geography- Driven Specialization Product- Driven Specialization Market- Driven Specialization Product/Market- Driven Specialization

1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (8) 5 Sales Organization Structures Geographic Product Market Functional Major Account

1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (9) 5 Geographic Sales Organization ( Geographic Sales Organization (Figure 5.5)

1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (10) 5 Comparison of Sales Organization Structures Organizational StructureAdvantagesDisadvantages Geographic  Low Cost  No Geographic Duplication  No Customer Duplication  Fewer Management Levels  Limited Specialization  Lack of Management Control Over Product or Customer Emphasis

1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (11) 5 Product Sales Organization Product Sales Organization (Figure 5.6)

1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (12) 5 Comparison of Sales Organization Structures Organizational StructureAdvantagesDisadvantages Geographic  Low Cost  No Geographic Duplication  No Customer Duplication  Fewer Management Levels  Limited Specialization  Lack of Management Control Over Product or Customer Emphasis Products Product  Salespeople Become Experts in Product Attributes and Applications  Management Control over Selling Effort Allocated to  High Cost  Geographic Duplication  Customer Duplication

1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (13) 5 Market Sales Organization (Figure 5.7) Broad Market Specialization –Consumers and/or Industrial Specific Industry Specialization –Government agencies, educational institutions, distributors, and retailers, OEMs

1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (14) 5 Comparison of Sales Organization Structures Organizational StructureAdvantagesDisadvantages Geographic  Low Cost  No Geographic Duplication  No Customer Duplication  Fewer Management Levels  Limited Specialization  Lack of Management Control Over Product or Customer Emphasis Products Product  Salespeople Become Experts in Product Attributes and Applications  Management Control over Selling Effort Allocated to  High Cost  Geographic Duplication  Customer Duplication Market  Salespeople Develop Better Understanding of Unique Customer Needs  Management Control Over Selling Effort Allocated to Different Markets  High Cost  Geographic Duplication

1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (15) 5 Functional Sales Organization ( Functional Sales Organization (Figure 5.8)

1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (16) 5 Comparison of Sales Organization Structures Organizational StructureAdvantagesDisadvantages Geographic  Low Cost  No Geographic Duplication  No Customer Duplication  Fewer Management Levels  Limited Specialization  Lack of Management Control Over Product or Customer Emphasis Products Product  Salespeople Become Experts in Product Attributes and Applications  Management Control over Selling Effort Allocated to  High Cost  Geographic Duplication  Customer Duplication Market  Salespeople Develop Better Understanding of Unique Customer Needs  Management Control Over Selling Effort Allocated to Different Markets  High Cost  Geographic Duplication     Functional Efficiency in Performing Selling Activities Geographic Duplication Customer Duplication Need for Coordination

1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (17) 5 Major Account Organizations Identify Major Accounts –Large and Important Accounts –Accounts with Complex Buying Needs Organize for Major Account Coverage –Assign Major Accounts to Salespeople, or –Assign Major Accounts to Sales Managers, or –Develop Major Account Salesforce Organize Major Account Salesforce –Level in Sales Organization Structure –Reporting Relationships

1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (18) 5 Sales Organization Structures Sales Organization Structures Identify Major Accounts (Figure 5.9) Complexity of Account Simple Complex Large Small Size of Account Large Account Regular Account Complex Account Major Account

1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (19) 5 Sales Organization Structures Sales Organization Structures Major Account Options (Figure 5.10) Assign Major Accounts to Salespeople along with Other Accounts Assign Major Accounts to Sales Managers Develop Major Account Salesforce

1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (20) 5 Hybrid Sales Organization Structure ( Hybrid Sales Organization Structure (Figure 5.12)

1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (21) 5 Sales Force Deployment Sales management decisions involved in allocating selling effort, determining salesforce size, and designing territories.

1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (22) 5 Interrelatedness of Salesforce Deployment Decisions Interrelatedness of Salesforce Deployment Decisions (Figure 5.12) Allocation of Selling Effort Sales Force Size Territory Design How much selling effort is needed to cover accounts and prospects adequately so that sales and profit objectives will be achieved? How many salespeople are required to provide the desired amount of selling effort? How should territories be designed and salespeople assigned to territories to ensure proper coverage of accounts and to provide each salesperson with a reasonable opportunity for success?

1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (23) 5 Allocation of Selling Effort Allocation of Selling Effort Analytical Approaches to Allocation of Selling Effort (Figure 5.13) Portfolio Models Decision Models Single Factor Model Easy to Develop and Use Difficult to Develop and Use Low Analytical Rigor High Analytical Rigor

1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (24) 5 Allocation of Selling Effort Allocation of Selling Effort Single Factor Models Easy to develop and use/low analytical rigor. Accounts classified into categories based on one factor, such as market potential. All accounts in the same category are assigned the same number of sales calls. Effort allocation decisions are based on the analysis of only one factor and differences among accounts in the same category are not considered in assigning sales call coverage.

1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (25) 5 Allocation of Selling Effort Allocation of Selling Effort Single Factor Model Example (Exhibit 5.3) Market Potential Categories A B C D Average Sales Calls to an Account Last Year Average Sales Calls to an Account Next Year

1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (26) 5 Allocation of Selling Effort Allocation of Selling Effort Portfolio Models Account Opportunity - an account’s need for and ability to purchase the firm’s products Competitive Position - the strength of the relationship between the firm and an account

1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (27) 5 Allocation of Selling Effort Allocation of Selling Effort Portfolio Model Segments and Strategies (Figure 5.14) Competitive Position Segment 1Segment 2 Segment 4Segment 3 Strong Weak Low High Account Opportunity

1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (28) 5 Allocation of Selling Effort Allocation of Selling Effort Decision Models Simple Basic Concept - to allocate sales calls to accounts that promise the highest sales return from the sales calls –Optimal number of calls in terms of sales or profit maximization Two Parts –Response Function - a mathematical equation that represents the relationship between sales calls and sales to accounts –Allocation Procedure - sets the response function to evaluate the expected sales for many different account effort allocation strategies

1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (29) 5 Salesforce Size Salesforce Size Key Considerations Sales Productivity - the ratio of sales generated to selling effort employed –Increase # of Salespeople = Increased Sales, but not in a direct linear relationship Salesforce Turnover –Opportunity costs may exceed $75,000 –An average turnover rate of 27% may be expected Higher in some industries, lower in others

1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (30) 5 Salesforce Size Salesforce Size Analytical Tools: Breakdown Approach Sales forecast is “broken down” to determine the number of salespeople needed to generate the forecasted level of sales. Sales Force Size = Average Sales per Salesperson Forecasted Sales

1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (31) 5 Salesforce Size Salesforce Size Analytical Tools: Workload Approach Integrates the salesforce size decision with account effort allocation strategies # of salespeople = Total Selling Effort Needed Avg Selling Effort per Salesperson

1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (32) 5 Salesforce Size Salesforce Size Analytical Tools: Incremental Approach Compares the marginal profit contribution with the marginal selling costs for each incremental salesperson. Optimal number of salespeople in where the marginal profit from adding one more salesperson equals the marginal cost of that salesperson.

1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (33) 5 Designing Territories Territory - consists of whatever specific accounts are assigned to a specific territory –Work unit for a salesperson Territory Considerations –Trading areas –Present effort –Recommended effort –Effects on Motivation

1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (34) 5 Territory Design Procedure Territory Design Procedure (Figure 5.17) Analyze Planning and Control Unit Opportunity Select Planning and Control Unit Form Initial Territories Assess Territory Workload Finalize Territory Design

1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (35) 5 “People” Considerations Temper analytical results with people considerations prior to making final deployment decisions. Salespeople may have a good feel for whether an account should receive more or less coverage. Reducing the size of the salesforce means letting people go. Adding salespeople may mean realignment of territories which may affect salesperson-customer relationships.