1. McGraw-Hill/Irwin Copyright 2006 by The McGraw-Hill Companies, Inc.

2. McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 4 Organizing the Sales Effort

3. McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. 4-3 Learning Objectives Identify the purposes of sales organization. Understand the different horizontal organizational structures of a sales force. Outline the major issues in key account and team selling. Discuss key vertical structure issues in sales organizations. Identify important issues in starting a new sales force from the ground up.

4. McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. 4-4 Importance of Sales Organization Decisions Organizing the activities and management of the sales force forms a major part of strategic sales planning Managers are becoming more proactive in restructuring A strong corporate vision and effective strategic market planning are closely linked with how the organization is structured and how it interacts with its customers

5. McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. 4-5 Purposes of Sales Organization Activities should be divided and arranged in such a way the firm can benefit from the specialization of labor. The organizational structures should provide for stability and continuity in the firm’s selling efforts. The structure should provide for the coordination of activities assigned to different persons in the sales force and different departments in the firm.

6. McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. 4-6 Division and Specialization of Labor Increase productivity - each specialist can concentrate efforts and become more proficient at the assigned task Divide required selling activities to gain maximum benefits of specialization within the sales force Line organization - vertical organization, chain of command runs from the chief sales executive down through levels of subordinates

7. McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. 4-7 Division and Specialization of Labor Line and staff – most common design Concerns –What specific functions should be assigned to staff? –How can staff activities be integrated with line sales manager activities? –Should staff activities be performed in-house or outsourced to independent contractors?

8. McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. 4-8 Organize for Stability and Continuity Organize activities without regard to the talents or preferences of current employees. People can be trained or recruited to fill positions. The same activities will be carried out at the same positions within the firm even if designated individuals receive promotions or leave.

9. McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. 4-9 Coordination and Integration The more an organization divides tasks among specialists, the more difficult integrating those tasks becomes. Issues: Sales force activities must be integrated with customer needs. Selling activities must be coordinated with other departments. Tasks must be integrated.

10. McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. 4-10 Outsourcing the Sales Force Manufacturer’s Representatives –intermediaries who sell part of the output of their principals. –Take neither ownership nor physical possession of the goods they sell. –Cover a specific territory and specialize in a limited range of complementary products.

11. McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. 4-11 Outsourcing the Sales Force Advantages of Manufacturer’s Reps –Many established contacts and prospects –Familiarity with the technical nature and applications of specialized products –The ability to keep expenses low by spreading selling costs –They appear as a variable cost item on their principals’ income statement

12. McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. 4-12 Outsourcing the Sales Force Six C’s of finding the right rep 1.Compatible lines 2.Compatible territories 3.Compatible customers 4.Credibility of the rep 5.Capabilities 6.Credits Source: Dan Hanover, “Independents Day,” Sales & Marketing Management, April 2000, pp. 65–68.

13. McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. 4-13 Outsourcing the Sales Force Selling Agents –Intermediaries who do not take title or possession of the goods they sell –Compensated by commissions from their principals –Have broad authority by their principals to modify prices and terms of sale –Actively shape the manufacturer’s promotional and sales programs

14. McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. 4-14 Considerations for Outsourcing the Sales Force Economic Criteria Control Transactions costs Strategic Flexibility

15. McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. 4-15

16. McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. 4-16 Common Bases for Structuring the Sales Effort Geographic organization Product organization Organization by customer type or markets Organization by selling function

17. McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. 4-17 Geographic Organization Simplest and most common method Individual salespeople assigned to separate geographic territories Each salesperson is responsible for performing all activities necessary to sell all the products

18. McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. 4-18 Geographic Organization 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 the specialization of labor.

19. McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. 4-19

20. McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. 4-20 Product Organization Advantages Individual salespeople master effective selling methods for single or related products. Closer alignment of sales and production possible. Sales management controls the allocation of the selling effort across the line. Disadvantages Duplication of effort. A separate sales force for each product (or category) in the line.

21. McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. 4-21

22. McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. 4-22 Organizing by Customer Type or Markets Advantages Better understanding of customer needs Increased familiarity with certain businesses Increased control over the allocation of the selling effort Disadvantages Possible higher selling and administrative costs Duplication of effort Organizing a sales force by customer type is a natural extension of the marketing concept and a strategy of market segmentation.

23. McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. 4-23

24. McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. 4-24 Organizing by Selling Function Different salespeople specialize in performing different selling functions – e.g. prospecting and developing new accounts versus maintaining and servicing existing customers.

25. McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. 4-25 Role of Telemarketing Prospecting for and qualifying potential new accounts Servicing existing accounts quickly when unexpected problems arise Seeking repeat purchases from existing accounts that cannot be covered efficiently in person Gaining quicker communication of newsworthy developments

26. McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. 4-26 National and Key Accounts Organizational approach to deliver customer service necessary to attract and maintain large and important customers. Sales execs must be able to... –be business managers capable of managing key accounts –customize products and services –plan and implement key account business plans

27. McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. 4-27 Organizing for National and Key Accounts Assign key accounts to top sales executives Create separate corporate division Create a separate sales force to handle major accounts

28. McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. 4-28 Team Selling Team selling integrates functional specialists with customer relationship specialists. Benefits include: –Questions answered faster –People with similar interests speak directly with one another

29. McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. 4-29 Team Selling A selling center brings together individuals from around the organization A matrix organization employs direct- reporting salespeople who support internal consultants with specialized expertise

30. McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. 4-30 Alternative Organizations Multi level selling –sales team consists of personnel from various managerial levels who call on their counterparts in the buying organization Co-Marketing Alliances – develop marketing and sales programs to sell integrated systems directly to the ultimate customer

31. McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. 4-31 Logistical Alliances and Computerized Ordering From the customer point of view, computerized ordering is –Convenient, –Flexible and –Less time consuming How will computerized reorder systems change the role of the sales force?

32. McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. 4-32 Vertical Structure of Sales Organizations Key questions: –How many levels of sales managers should there be? –How many people should each manager supervise? (span of control)

33. McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. 4-33 Vertical Sales Organization Generally, span of control should be smaller and number of levels of managers larger when: –The sales task is complex –The profit impact of each salesperson’s performance is high –The salespeople in the organization are well paid and professional

34. McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. 4-34 Vertical Sales Organization Span of control should be smaller at higher levels in the sales organization Other issues: –How much authority should each manager be given? –At what level of sales management should authority for different decisions lay?

35. McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. 4-35 Building Blocks for New Sales Force Startup 1.Start with a strategy 2.Appoint an expansion team 3.Leverage existing strengths 4.Go to the press 5.Avoid compensation snafus 6.Provide support Sales managers assigned to create a new sales force can employ “best practices”

36. McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. 4-36 Key Terms division and specialization of labor line organization line and staff organization outsourcing the sales force manufacturers’ representatives selling agents transaction cost analysis (TCA) geographic organization product organization organization by customer type organization by selling function telemarketing national or key accounts team selling selling center matrix organization multilevel selling co-marketing alliances logistical alliances span of control

37. McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. 4-37 Mark W. Johnston Rollins College Greg W. Marshall Rollins College