Study Material - SDM

8/3/2019 Study Material - SDM

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Module-I:

- Definition, objectives, Functions and classification of Sales Management,- Selling under the Marketing concept,- Interdependence of Salesmanship and Advertising.

- The Sales Organization:- Purpose, principles and policies of sales organization,- Setting up of the sales organization,- Typical sales organization structure,- planning of the selling factors.

Definition, objectives, Functions and classification of Sales Management:

Definition: Sales management is a sub-system of marketing management, whichtranslates the marketing plan into marketing performance. Sales managers in the modern

organization are required to be customer oriented and profit directed and performs severaltasks besides setting and achieving personal selling goals of the firm.

Sales management as defined by the American marketing association, The planning,direction and control of personal selling including recruiting, selecting, equipping,assigning , routing, supervising, paying and motivating the sales force.

It is important to differentiate sales management from personal selling and salesmanship.Sales management directs the personal selling efforts, which in turn is implementedlargely through salesmanship. Personal selling is a broader concept than salesmanship. Itis the art of successfully persuading prospects or customers to buy a product or service

from which they can derive suitable benefits, thereby increasing their total satisfaction.Sales managers have still other responsibilities. They are responsible for participating inthe preparation of information critical to take key marketing decisions, such as those on budgeting, Quota setting and territory management. They also participate in productdecisions, marketing channels and distribution policies, advertising and other promotionand pricing. Thus a sales manager is both an administrator in charge of personal sellingactivity and a member of the executive group that makes marketing decisions of all types.Sales management is a key function in many kinds of enterprises. It may be amanufacturing concern, a wholesaling unit, a retail outlet, a real estate broker, or aautomobile dealer. Even firms selling intangibles such as insurance companies, stockbrokers, mutual funds, tours and travel have sales management problems.

Objectives of sales management: From company viewpoint there are three generalobjectives of sales management. These are as follows:

Enhancement of sales volume.

Contribution to profit

Continuous growth.Though the sales manager is responsible to make major contribution on the aboveareas, yet the top management is accountable for supplying an ever-increasing


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volume of socially responsible products that the final buyers want at satisfactoryprices. To achieve the above objectives, the following goals are set for the salesmanager.

1. Sales executives provide estimates on market and sales potential.2. To guide and lead the sales personnel and middlemen.

3. To develop strategy for future operations.4. To provide information to the higher management for making marketingdecisions and for setting sales and profit goals.

5. Comparing marketing opportunities with the projected growth rate, thesales manager is responsible for achieving a particular sales volume, grossmargin and net profit in units of products and in dollars.

6. To create and maintain relationship with the channel members.7. To negotiate with the customers.8. To provide smart service and develop the goodwill for the firm.9. To provide solutions to the problems

Functions of sales management:

The determination of sales force objective and goals

Sales force organization, size, territory, and quota finalization

Sales forecasting and budgeting

Sales force selection, recruitment, and training

Motivating and leading the sales force

Designing compensation plan and control systems

Designing career growth plans and building relationship strategieswith key customers

Selling under the Marketing concept:

Sl.

No.

MARKETING SELLING

01 Emphasis is on customers needs

and wants.

Emphasis is on the product, and

the needs and interests of the

seller.

02 Satisfaction of the customer is

primary.

Sales are the primary motive.

03 Planning is long-term oriented. Planning is short-term oriented.

04 External, market segmentation. Internal, company orientation.

05 Consumer determines the price

and price determines the costs.

Cost determines the price.

06 It is an activity that converts the

consumer needs into products.

It is an activity that converts the

goods into cash.

07 Marketing overall a whole process.Selling is a part of marketing

process.


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08 Emphasizes on innovation in every

sphere; on providing better value

to the customer by adopting the

most innovative technology.

Emphasizing on staying with the

existing technology and reducing

the cost of production.

Interdependence ship between salesmanship and advertising:

Salesmanship is an art of successfully persuading prospects or customers to buy aproduct or services from which they can derive suitable benefits, therebyincreasing their total satisfaction.

Salesmanship therefore is a seller initiated effort that provides prospective buyerswith information and other benefits, motivating and persuading them to decide infavor of the sellers product or service.

Personal selling effort is a two way communication process. It can be easily measurable.

Advertising is any form of non-personal form of communication between

the buyer and seller by an identified sponsor. Advertising is a one way communication. In advertising customer does not come in direct contact with any

representative of the organization. So the reaction, attitude or perception of the viewers cannot be

immediately gauged in advertising.

Let us understand a very interesting aspect of advertising and selling, about the relativeimportance of the two, during the three different stages i.e. pre-purchase phase, thepurchase phase and the post purchase phase. of a products/brands market. Pre-purchasestage is a time period when the companies try to generate demand for the product. In

%ageof

Promotional

effort

Simple/

Inexpensivegoods

Complex/Expensiv

egoods

Personal selling

Advertising


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purchase stage the customer actually buy the product. In postpurchase stage theconsumer evaluates his/her purchase decision. The figure shows that personal selling hasan increasing role in all the three stages of purchase decision and particularly a leadingrole in the purchase stage. But advertising has a leading role in the pre-purchase stage andpost purchase stage to generate mass demand and congratulating the consumer for taking

the right product decision.

The Sales Organization:

Effective sales executive insist upon sound organization. They recognize that the salesorganization must achieve both qualitative and quantitative personal selling objectives.The qualitative objectives are instrumental for the long term growth and the quantitativeobjectives in terms of sales, profit and market share are important for the short termgrowth of the organization. Therefore the sales organization needs people striving jointlyto reach qualitative and quantitative objectives by creating a suitable structure of humanrelationship. The sales organization should not have a rigid structure. It should have

build-in adaptability to respond appropriately in fluid and diverse marketingenvironments.Purpose: The sales organization must not be worried of designing a formal structure.How an organization works is more important than how it suppose to function. Salesmanagement should direct its organizational efforts towards a informal organizationthrough intelligent leadership. The followings are the purpose of setting a salesorganization.

1. To permit the development of specialists: The sales department is organizedand reorganized to retain the specialized workforce through proper delegation ofauthority and responsibility. When the organization grows, the tasks also grow innumber and complexity. Therefore it needs to be broken into smaller partsthrough division of labor. So the structure needs to be reshaped to encourage thespecialists to develop.

2. To perform all necessary activities: When an organization grows andspecialization increases, it becomes difficult to supervise all the activities.Therefore the change is required to restructure the system. For instance, whenthe company is small, its executives are in close contact with the end users of theproduct. But as the company grows, as the marketing channels lengthen and themarketing area expands geographically, the executives become farther andfarther from the customers. Therefore the company appoints public relationofficer and missionary salesperson to keep such contacts. So there is a change inthe structure.

3. To achieve co-ordination or balance: Sales people are the field workers. Theentire department is target oriented either qualitatively or quantitatively or both.Sometimes they do not prefer to work in the team because of ego miss-match.Motivating individuals to work together toward common objectives is importantin achieving co-ordination. Individual goals are subordinated to theorganizational goals. This is achieved through indoctrination and training programmes, group meetings, supervision and guidance and two waycommunications. Throughout the sales organization different activities are kept


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in proper relation to one another in order that the greatest organizationaleffectiveness is realized. Modern sales organizations should be divided intosmall, freely communicating and face to face groups to reduce the possibility ofun coordinated proliferation.

4. To define authority: Sales executives should know whether their authority is

line, staff or functional. Where as the functional authority is suitable technicalproduct or services the staff authority is combined with the line in providingconsultancy or advice to the line members. The sales organization should beclear whether the order is unidirectional or multi directional. The organizationshould be developed to promote harmony among the employees.

5. To economize on the executive time: As the sales departments operations andactivities increase in complexity and number, additional subordinates are added.This permits the higher ranking sales executives to delegate more authoritytowards planning decisions and less time on operational activities. Therefore thelower level sales executives have wider span of control and the higher levelshave lower span of control. This change will definitely initiate structural reforms

in the organizational set-up. It is all important for time and man management.

Principle and Policies of organizational structuring:

a. There must be clear lines of authority running from the top to thebottom of the organization.

b. Responsibility should always be coupled with corresponding authority.c. Authority should be delegated as far down the line possible.d. The work of every person should be confined as far as possible to the

performance of a single leading function.e. There should a limit to the number of positions that can co-coordinated

by a single objective.f. The number of levels of authority should be kept as a minimum.g. The organization should be flexible so that it can be adjusted to

changing conditions.h. The organization should be kept as simple as possible. The

responsibility and authority of each level should be clearly defined, ifnecessary in writing.

Setting of a sales organization:

There are basically five major steps in setting up a sales organization. These are asfollows:

1. Defining the objectives: The objectives of the sales department are derivedfrom the objective of the company. Looking into the vision, the topmanagement establishes the shape of the organization. The top managementfor instance may want the firm not only to survive but to achieve industryleadership, develop a reputation for outstanding technical research, diversifyin product lines, provide excellent service to the customers, provide generousreturn to the investors or establish an image for public responsibility and soon. From these composites, the sales management determines the


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implications for the sales departments and articulates a set of qualitative andquantitative personal selling objectives. The general objectives may besummed up in three words: sales, profits and growth.

2. Determination of activities and their volume of performance:Fundamental to the sound organizational design is the determination of all

the necessary activities and estimating their volume of performance. Thenonly we can know what executive positions are required and what should betheir relationships to the other positions, and what should be the duties andresponsibilities of the persons who fill these positions.

3. Grouping activities into the positions: After the activities are identified,they are allocated to different positions to achieve certain objectives. This ismainly done through job description (in terms of reporting relationships, jobobjectives, duties and responsibilities and performance measures.) Activitiesare classified and grouped so that closely related tasks are assigned to thesame position. But there is variation in job challenge, interest andinvolvement. Generally in very large organizations, where extreme

specialization is practiced, the position comprised of single activity and theburden of proof should be on those proposing such a move. Sometimes asingle position is responsible for highly diversified activities like productmerchandising and pricing. It has implications in organizational design.

4. Assignment of personnel to positions: The next step is to assign personnelto positions. This is the fitment study. It is a very controversial debatewhether the unique talents and abilities those are prudent and profitable willbe having the same positions or the positions need to be modified. The idealapproach before the planners to permit situations to have individual growthinto a particular job.

5. Provision for co-ordination and control: Co-ordination and control isobtainable through both informal and formal means. Strong leaders controland co-ordinate the efforts of their subordinates largely on an informal basisthrough their personality. Such leaders make minimal use of formalinstruments of control and co-ordination. But the sales executives prefer touse formal means of control to improve effectiveness. The most importantformal instrument of organizational control is the written job descriptionwhere the reporting relationship, job objectives, duties and responsibilities,performance measurements etc are clearly mentioned.

Sales organization structure:

There are basically four types of sales organizations from the standpoint ofposition and relationship. These are as follows:

1. Line organization2. Line and staff organization3. Functional organization4. Committee organization


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Line Organization: It is the oldest and the simplest form of salesorganizational structure. It is widely used in smaller firms with small numberof selling personnel. For instance the companies that cover limitedgeographic location or sell narrow product line. The chain of command flowsfrom the top sales executives down through subordinates. All executives

exercise line authority and each subordinate is responsible only to one personin the next higher order. The lines sales organization sees its greatest use incompanies having a vertical structure and all sales personnel report directlyto the chief sales executive. There is no cross communication betweenpersons at the same level. This is purely indirect and effected through thenext higher level.

As per the above figure , if the assistant sales manager of division 1 wants to contact withthe assistant sales manager of division 2, it can be effected through the sales manager.Similarly the sales people of two division can interact each other through the assistantsales manager which is ultimately through the sales manager. The basic simplicity of theline organization is the main reason for its use. The clarity of authority and responsibilitysaves time in policy making, deciding new plans and converting plans into action . Butthe greatest weakness of this structure is the excessive dependency on the departmenthead and therefore inappropriate for the growing concerns having large sales staffs.

Line and staff organization: The line and staff sales department is often found in largeand medium sized firms, employing substantial number of sales personnel, and sellingdiversified product lines over wide geographic areas. In contrast to the line organization,the line and staff organization provides the top sales executives with a group ofspecialists- experts in dealer and distributor relations, sales promotions, sales analysis,sales training, sales planning, service, traffic and warehousing and similar fields Thesestaffs helps the top sales executives by providing the necessary informations and saves

Gen. Manager

Sales manager

Asst. S. MgrDiv- 1

Asst. S. MgrDiv-2

Asst. S. MgrDiv-3

Sales people Sales people Sales people Sales people

Asst. S. MgrDiv-4


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the time of the top executives. Similarly the tasks involving deep study and analysis aregiven to the staffs and the top sales executives devote more time towards planning andstrategic matters. The staff sales executives do not have authority to issue orders anddirectives. Their recommendations are submitted to the top sales executives and ifapproved is transmitted to the line members for its implementation. The advantages of the

line and staff organization are mainly those of specialization. The chief sales executivesbeing relieved from much detailed work, can take a broader view to the department.Problems can be seen in clear perspective and connection between un related problemsare brought into focus. A pool of experts provides advice and assistance in the specializedfields.

The greatest weakness of the line and staff model is the role ambiguity and conflict. Thesuccess of this model depends upon the co-coordinated effort between the line and staffswhich is very much costlier. Sufficient time should be devoted for problem recognition

and corrective action which may hamper the decision making process.

Functional Sales Organization: Some few sales departments use functionalorganization .This structure has been developed as the brainchild of Frederic W Taylorwhich is based upon the principle of specialization. The outstanding advantage of thefunctional sales department is improved performance. Specialized activities are assignedto the experts whose guidance should help in increasing the effectiveness of the salesforce. The sales operations are highly centralized and therefore becomes ineffective for

President

V.P- Marketing

Advertising Mgr Gen. Sales Mgr Mgr- MarketingResearch

Dic. SalesTraining

Dic. SalesPersonnel

Asst. Gen.Sales Mgr

Mgr- SalesPromotion

Dic. Dealer&DistributorRelations

District Sales Mgrs

(6)

Branch Sales Mgrs(32)

Sales Personnel(450)


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many large firms. Even the practicality of a functional organization do not finds itsfeasibility for small and medium sized firms. It is not financially possible to adopt highdegree of division of labor.

It is sometimes contended that functional organization is suitable for large firms withstable operations and opportunity for considerable division of labor. But the largecompanies with stable selling operations are the exceptions rather than the rule.

Committee sales organization: It is not the sole basis for organizing a sales department.It is a method of organizing the executive group for planning and policy formulationwhile leaving the actual operation including implementation of plans and policies to theindividual executives. Therefore the organization may have many committees such assales training committees, customer relation committees, human resource committees andnew product committees. The sales training committee may consist of sales trainingmanager, his/her assistants, the general sales manager and the regional sales manager. Allthe members sit together to draft training plans and formulate sales training policies butits implementation sole responsibility of the sales training manager. The use ofcommittees in the sales department has many advantages. Before policies are made andaction is taken, important problems are deliberated by committee members and aremeasured against varied viewpoints. It also promotes co-ordination among members ofthe executive team. But the committee meetings consume more time. Therefore theagenda of the meeting should be properly framed to avoid wastage of time.The marketing organization can be organized on any of the following basis:

a. Function-oriented Sales Organization.b. Product-oriented Sales Organization.c. Customer-oriented Sales Organization.d. Geography-oriented Sales Organization.e. Combined-based Sales Organization.

Director of SalesAdministration

Mgr-Installation &service

Mgr- SalesTraining

Mgr- SalesPromotion

Mgr- Dealer &DistributorRelation

SalespersonSalesperson Salesperson Salesperson


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a. Function-Oriented Sales Organization:

When departmentation of sales organization is done on the basis of salesactivities, it is called departmentation on function basis.

b. Production Oriented Sales Organization:

Product type of departmentation is done when the enterprise produces ormanufacturers or markets different types of products. In this case separatesales executives are appointed for each product or group of products in theproduct line. Each will have its own organization to perform the various salestasks.

MARKETING MANAGER

Advertising Deptt.

Sales Supervisor

SalesPromotion

Deptt

MarketingResearch

Deptt.

SalesPlanningDeptt.

Sales Manager

Salesman

Sales Supervisor

Salesman

GENERAL MANAGER

MARKETING

Marketing OfficerProduct - 1



Sales Supervisor

Salesmen

Sales Supervisor

SalesmenSalesmen

Sales Supervisor


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c. Customer-oriented Marketing Organization:

When the departmentation sales organization is done on customer basis, it iscalled customer oriented Marketing Organization. We may also call it asdepartmentalization on the basis of distribution channels.

d. Geography/Territory Oriented Marketing Organization:

Here for the selling of a particular product types, the total marketing area isdivided into territories. Each territory is under the control of a separate salesexecutive. He is assisted by a separate sales force.

MANAGER MARKETING

SalesOfficerDirect

Marketin

g

Sales OfficerConsumerProducts

SalesOfficerForeign

Customer

s

SalesOfficer

ChannelMktg.

SalesOfficer

IndustrialProducts

Salesmen

Salesmen

Salesmen

Salesmen

Salesmen

COUNTRY MARKETING

MANAGER

Regional SalesManagerNORTH

Sales Supervisor

Regional SalesManager

EAST

Regional SalesManager

WEST

Regional SalesManagerSOUTH

Sales Supervisor Sales Supervisor Sales Supervisor

Sales manSales man Sales manSales man


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e. Combined-base Marketing Organization:

The combination of two more basis of departmentation such as territorial,product and customers basis etc. is called combined basis of departmentationof sales organization.

Planning of the selling factors:

Examine customers in each market. Determine the types of sales jobs needed to serve a market. Note the job activities salespeople must do. Design sales jobs around customers. Set up the sales force organizational structure, which includes the various

sales jobs and geographic territories. Product and service related factors Organization related factors

Marketing mix related factors External factors:. The speed of market change. Reduction in the number of vendors per buyer. Closer to customer relationships. Changes in regulations and international practices

Other Factors like:

The product The customers Territory Techniques of selling Promotional materials His/Her own organization Targets

Stages in the selling process:

Pre-sale

preparation

Sales

Presentation

Handling

Customer

Objections

Closing the

SaleFollow up

action

Approach to

the customer

Pre-

approach

before the

interview

Prospecting


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Module II- Sales Forecasting- Sales strategies and policies determining the size of the sales force,- Sales territories, routing and scheduling,- Controlling the selling effort- Sales budget and budgeting procedures- Quota setting and administration.- Management of sales force:

Personnel problems of sales management, recruiting and selecting,

training and development, motivating salesman, sales meetings andcontests, compensating sales personnel, evaluation and supervisingsalesmen.

===============================================================Sales Forecasting:

Sales Forecasting: Sales forecasting is as estimate of sales, in dollars or physical units,in a future period under a particular marketing programme. A sales forecast may be for asingle product or for an entire product line. Although a sales forecast can be made for ashort run or long run yet the short run or operating sales forecast is important to the salesexecutive. The operating sales forecast is the prediction of how much of a companysparticular product (or product line) can be sold during a future period under a givenmarketing programme and an assumed set of out side factors.

Sales Forecasting Methods:

The sales forecasting methods are the procedures for estimating how much of a givenproduct (or product line) can be sold if a given marketing program is implemented. Nosales forecasting method is foolproof. Each is subject to error. But some areunsophisticated such as expert opinion or the pool of salespersons opinion and others aresophisticated as they use statistics. Therefore the well managed companies do not relyupon a single sales forecasting method but use several of them. The followings are thedifferent sales forecasting methods.

Jury of Executive Opinion: According to this method, a company invites the opinion ofthe executives and consultants who are well informed about the industry outlook and thecompany marketing position, capabilities and marketing programme. The companies usethis experts opinion method for one or more of the four reasons.

1. This is a quick and easy way to turn out a forecast.2. This is a way to pool the experience and judgment of well informed people.


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3. This is a feasible approach for the young companies who do not have experiencein other forecasting methods.

4. This method may be used when adequate sales and market statistics are missing.But the weakness of this method is the difficulty of breaking down the estimates ofprobable sales by products, by time intervals, by markets, by customers and so on.

The Delphi technique: In this method the experts responds to a sequence ofquestionnaires which is vividly discussed. Out of the brainstorming the estimate iscalculated on the basis of past performance.

Poll of Sales Force Opinion: This is otherwise known as the grass-root approach. Herethe individual sales person forecast sales for their territories. These individual forecastsare combined and modified as the management thinks necessary to arrive at the companysales forecast. This approach appeals to the practical sales managers because theforecasting responsibility is assigned to those who produce the results. Furthermore, thereis a merit in utilizing this method as the salesmen become closest to the marketconditions. Again the quota can easily be broken down according to the products,

territories, customers, middlemen and sales force. But the weakness of this method is theuse of inexperienced sales force who sometimes become optimistic or pessimistic aboutthe sales prospects just looking at the current business conditions. Some times they aretoo near the trees to see the forest. They are unaware of the sudden changes in thebusiness conditions.

Projection of Past Sales: The projection of past sales method of sales forecasting takes avariety of forms. To calculate the next years sale, the formula is

Next years sales = this years sales x this years sale

Last years sale

This method is more appropriate for the companies which are more or less stable ormature industries.Time- series analysis: It is a statistical procedure for studying historical sales data.This procedure involves isolating and measuring four types of sales variations.

1. Long term trends2. Cyclical changes3. Seasonal variations4. Irregular fluctuations.

Generally these methods are used for the long run forecasting .Incase of the short run ifthe sales pattern is clearly defined or relatively stable from year to year, then the timeseries analysis can be appropriately used.

Exponential Smoothing: Exponential smoothing is a short range sales forecastingtechnique in the form of moving average that represents a weighted sum of all pastnumbers in a time series, with the heaviest weight placed on the most recent data. Theformula is:Next years sales = a(this years sales)+ (1-a)(this years forecast)

a in the equation is called the smoothing constant and is set between 0.0 and 1.0. Iffor example, actual sales for this year came to 320 units of products and the sales forecastfor this year was 350 units and the smoothing constant was 0.3 , the forecast for the next


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years sales is= (0.30)(320) + (0.7)(350) = 341 units of products. Determining the valueof a is the main problem. If the series of the sales data changes slowly, a should besmall but if the series changes rapidly, a should be large enough so that the forecastrespond to those changes.Survey of Consumer Buying Plans: This method is basically used for industrial

marketing where the potential market consist of small numbers and prospects, substantialsale is made to the individual accounts, the manufacturer sells directly to the users andthe customers are concentrated in few geographical areas. In such cases it is inexpensiveto survey a sample of customers and prospects to estimate the product or project the salesforecast.

Regression Analysis: Regression analysis is a statistical process used in sales forecastingdetermines and measures the association between company sales and other variables.There are three major steps of regression analysis.

1. Identify variables causally related to company sales

2. Determine or estimate the values of these variables related to sales.3. Derive the sales forecast from these estimates.There may be two types of regression; simple and multiple.

Exponential Smoothing:

Exponential smoothing is similar to the moving-average forecasting method. It allowsconsideration of all past data, but less weight is placed on data as it ages.

Next Years Sales = a (This Years Sales) + (1-a) (This Years Forecast)a in the equation is called the smoothing constant and is set between0.0 and 1.0.

Moving Average:Moving averages are used to allow for marketplace factors changing at different rates andat different times.

The 3-yearly moving average can be computed with the following formula:a+b+c b+c+d c+d+e d+e+f--------- , ----------- , ---------- , --------- , .

3 3 3 3

A sales forecast is important for at least five reasons:

1. A sales forecast becomes a basis for setting and maintaining a productionschedule manufacturing.

2. It determines the quantity and timing of needs for labor, equipment, tools,parts, and raw materials purchasing, personnel.

3. It influences the amount of borrowed capital needed to finance theproduction and the necessary cash flow to operate the business controller.


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4. It provides a basis for sales quota assignments to various segments of thesales force sales management.

5. It is the overall base that determines the companys business andmarketing plans, which are further broken down into specific goals marketing officer.

THE FORECASTING PROCESS:

Sales strategies and policies determining the size of the sales force :

Determining the sales force size is an important decision for every sales department. Ascompensating sales people is a very costlier affair, there fore its size should beappropriate to serve customer and the firm needs. The customer needs may be easyavailability of the product, timely delivery, providing sufficient product informationsetc the firm needs may be increase of sales volume, increase of profit margin, creating astrong customer base etc. Therefore the sales person should work both efficiently andeffectively. Similarly each company has individualized requirements as to the kind ofsales personnel best fitted to serve its needs. Furthermore different selling jobs requiredifferent levels of selling and non-selling abilities, training and technical and otherknowledge. Therefore in determining the kind of sales people and their size we mustunderstand what is expected of them: the job objectives, the duties and responsibilitiesand the performance measures.

D e t e r m i n e D e p e n d e n t a n dI n d e p e n d e n t V a r i a b l e s

D e v e l o p F o r eP r o c e d u r e

S e l e c t F o r e c a

A n a l y s i s M e

T o t a l F o r e c a

P r o c e d u r e

G a t h e r a n d AD a t a

P r e s e n t A s s u m p t i o n s

a b o u t D a t aM a k e a n d F i n a l i z e

F o r e c a s t

E v a l u a t e R e s u l t s

v e r s u s F o r e c a s t

F o r e c a s t

O b j e c t i v e


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It is difficult, perhaps impossible to determine the exact number of sales persons that aparticular company should have. Three basic approaches are used in approximating thisnumber.

1. The workload method2. The sales potential method

3. The incremental method

1. The Work Load Method: In the work load method the basic assumption is thatall sales personnel should shoulder equal work loads. The management first estimates thetotal work load involved in covering the companys entire market and then divides by thework load that an individual sales person should be able to handle, thus determining thetotal number of sales person required. Companies applying this method generally assumethat the interactions of three factors such as customer size, sales volume potential, and thetravel load determine the total workload involved in covering the entire market. The workload approach is very attractive to the practicing sales executives. It is easy to understandand easy to apply. Large firms such as IBM, AT &T, and HLL etc use this approach. But

the basic flaw in the work load approach is that, as usually applied it disregards profit asan explicit consideration. However practically many factors other than account size suchas gross margin on the product mix purchased by an account, the expenses incurred inserving an account etc determines the length and frequencies of the sales calls whichultimately influence profitability. Another shortcoming of this approach is that not onlyshould all sales personnel have the same work load but they all should utilize their timewith equal efficiency.

2. The Sales Potential Method: The sales potential method is based on theassumption that performance of the set of activities contained in the job descriptionrepresents one sales personnel unit. A particular sales person may represent either moreor less than one sales personnel unit. If the individuals performance is excellent, thatindividual may do the job more than one unit; if the individuals performance is belowpar, he/she may do less. If management expects all companys sales personnel to performas specified in the job description, then the number of sales person required equals thenumber of units of sales personnel required. The formula used in this method is

N = S/P + T(S/P) or N = S/P (1+T)Where N = number of sales personnel units.

S = forecasted sales volumeP = estimated sales productivity of one sales personnel unitT = allowance for rate of sales force turnover.

For example, a firm with forecasted sales of $1 million estimated sales productivity persales personnel unit of $ 100,000 and an estimated annual rate of sales force turnover of10 percent. So

N = $10, 00,000/ $1, 00.000 (1.10) Or N = 11 sales personnel units.This is a simplified model for determining the size of sales force. The crucial estimate ofthe sales productivity of one unit of sales strength relies heavily on the accuracy andcompleteness of the sales job description, it depends also on the managements appraisalof what reasonably maybe expected of those who fill the position. In addition both the


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estimates for the unit sales productivity and the sales force turnover rate requiremanagement to have some means of evaluating the efficiency of individual sales personand of determining the probabilities of their retention rate.

3. Incremental Method: Conceptually the incremental method is the best

approach to determining the sales force size. It is based on one proposition that the netprofits will increase when additional sales personnel are added if the incremental salesrevenues exceed the incremental costs incurred. Thus to apply this method, one needstwo important items of information. Incremental cost and incremental revenues. Thoughthis method is most conceptually correct, it is also most difficult to apply. It requires firstthat the company develop a sales response function to use in approximating (in terms ofsales volume) the markets behavior in relation to alternative levels of personal sellingeffort. A sales response function is a quantitative expression that describes therelationship between the personal- selling effort and the resulting sales volume

Sales territories, routing and scheduling:

A sales territory is composed ofa group of customers ora geographic area assigned toa salesperson.

Reason for establishing Sales territories:

Sales territories are set up and subsequently revised as the market conditions dictate tofacilitate the planning and control of sales operations. More specifically there are fivereasons for having sales territories.

1. To provide proper market coverage2. To control selling expenses3. To assist in evaluating sales personnel4. To contribute to the sales force morale5. To aid in the co-ordination of personal selling and advertising efforts.

To provide proper market coverage: Some times a company looses business tocompetitors because it does not have proper market coverage. To overcome thisproblem, generally management must establish sales territories, if the company doesnot have them or revise those that it has. If the sales territories are intelligently set andthe assignments of the sales personnel are carefully made it is possible to obtainproper market coverage. Good territorial design allows sales personnel to spendsufficient time with customers and prospects and minimize the travel time. This permits them to become thoroughly conversant with customers problems andrequirements.

To control selling expenses: Effective territorial design combined with carefuldeployment of sales person results in low selling expenses and high sales volumes.Sales person spend fewer nights away from home which reduces or eliminates manycharges for lodging and fooding, at the same time cutting travel miles reducestransportation expenses. These savings, plus the higher sales volumes from increased


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productive selling time reduce the ratio of selling expenses to sales. Well designedsales territories and appropriate assignments of sales personnel increase the total timeavailable for contact with customers and prospects and helps improving sales volume.

To assist in evaluating sales personnel:

Through geographically dividing the sales territories, management can easily assessthe strength and weakness of different areas and appropriate adjustments can be madein selling strategies. This territory analysis will help the management to fixtargets/quota by evaluating the sales and cost responsibility against the performanceof individual sales person.

Contribution towards sales force morale:

Good territorial design helps maintaining sales force morale. Well designed territorieshelp the sales force to cover areas with reasonable workloads and their effort yields

results. Effective territorial design combined with intelligent sales person assignmentmakes each sales person productive; develop their self confidence and jobsatisfaction.

Factors to consider while designing sales territories:

Sales force objectives may be based on factors such as- contribution to profits,- return on assets,- sales/cost ratios,- market share,

orcustomer satisfaction

Scheduling: refers to establishing a fixed time when the salesperson will be at acustomers place of business.

In theory, strict formal route designs enable the salesperson to:

1. Improve territorial coverage.2. Minimize wasted time.3. Establish communication between management and the

sales force in terms of the location and activities ofindividual salespeople.

The customer contact plan involves scheduling sales calls and routing a salespersonsmovementaround the territory.


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Three Routing Patterns:

I.

II. III.

Controlling the selling effort :

Sales budget and budgeting procedures:

Budgeting can be defined as the process of planning and anticipating costs andexpenditure of various financial resources on projects.

It is the process of making specific financial plans for a short period of time. Ithelps in predicting and controlling the money spent within the organization andalso involves day to day monitoring of current budgets.

The first budget prepared.

Each of the other budgets depends on the sales budget.

It is derived from the sales forecast. It represents managements bestestimate ofsales revenue for the budget period.

Sales Budget is the estimated amount of anticipated sales allocated by product,territory, or person;prepared weekly, monthly, or annually.

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Sales Budget is theOperating plan for a period expressed in terms of sales volumeand selling prices for each class of product or service. Preparation of a sales budget isthe starting point in budgeting since sales volume influences nearly all other items.

The sales force budget is the amount of money available or assigned for a definite period,

usually one year.Sales Budget: The budget is made to forecast sales in terms of units sold and value ofgoods sold. This budget acts as a base for making production budget.

What is Benefit of sales budget?

Sales budget is the most important budget while making the overall budget for theorganization for a fiscal year.

It is important in this sense that how would anybody make fiscal budget fororganization if he don't know about how much to sale or what are theorganization's sale would be.

If you know the sales volume of units of product you want to sale in a fiscal yearthen you will make production budget according to that sales requirement in mindyou will have production information in mind you will purchase raw material,hire labour according to requirements.

So if you don't know about how much you want to sale then how would youbudget other things and how would you compare your performance at the end offiscal year.

Purposes of Sales Budget:

The sales budget is required for Planning Coordination Control-

-of the sales activities.Budget Procedure:


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Quota setting and administration:

A quota refers to an expected performance objective.

Quotas are tactical in nature and thus derived from the sales forces strategic objectives.

WHY ARE QUOTAS IMPORTANT?

Because: - Quotas provide performance targets.

Quotas provide standards. Quotas provide control. Quotas provide change of direction. Quotas are motivational.

TYPES OF QUOTAS

Sales volume quotas. Breakdown total sales volume. Profit quotas. Expense quotas. Activity quotas. Quota combinations.

Sales volume quotas include dollar or product unit objectives for a specificperiod of time.Product lines.Individual established and new products.Geographic areas based on how the sales organization is designed, which wouldinclude:


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- Sales division.- Sales regions.- Sales districts.- Individual sales territories.

The two types ofprofit quotas: Gross marginquota determined by subtracting cost of goods sold from

sales volume. Net profit quota determined by subtracting cost of goods sold and

salespeoples direct selling expense from sales volume.

Expense quotas are aimed at controlling costs of sales units. Often expenses arerelated to sales volume or to the compensation plan.Activity quotas set objectives for job-related duties useful toward reachingsalespeoples performance targets.

Customer satisfaction refers to feelings about any differences between what isexpected and actual experiences with the purchase.

METHODS FOR SETTING SALES QUOTAS

Quotas based on forecasts and potentials. Quotas based on forecasts only. Quotas based on past experience. Quotas based on executive judgments. Quotas salespeople set. Quotas related to compensation.

THE PROCEDURES FOR SETTING OBJECTIVES AND QUOTAS WITH

SALESPEOPLE

Prepare the way. Schedule conferences with each salesperson. Prepare a written summary of goals agreed upon. Optional group meeting to share objectives.

A GOOD OBJECTIVE AND QUOTA PLAN IS SMART

Specific Measurable Attainable Realistic Time specific


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Module-3

Recruitment & Selection of Sales Force:

RECRUITMENTS PURPOSE

Recruitment is the set of activities and processes used to legally obtain a sufficientnumber of individuals in such a manner that the recruits and the sales forces bestinterests are taken into consideration.

FACTORS TO CONSIDER WHEN DETERMINING HOW MANY TO HIRE

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DETERMINING THE TYPE OF PERSON FOR THE JOB

A job analysis refers to the formal study of jobs to define specific roles or activities to beperformed in sales promotions.The three steps in the job analysis are to:

1. Examine the total sales force and each job, and determine how eachjob relates to other jobs.

2. Select the jobs to be analyzed.3. Collect the necessary information through observation of what people

actually do in the jobs, interviews of people in the jobs, andquestionnaires completed by job holders.

MAJOR INFLUENCES AND COMPONENTS OF SALES RECRUITMENT

To be an effective recruiter, a sales manager must have the answer to several questions,including:

How many people do I need to recruit? Who does the recruiting? Where do I find recruits? How can I develop a qualified pool of applicants? How can recruiting programs be evaluated?

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SOURCES OF RECRUITS

INTERNAL SOURCESInternal recruitment sources come from inside the company:

Current Employees. Promotions. Transfers.

EXTERNAL SOURCES Walk-ins. The Internet.

Employment agencies Radio and television. Newspaper advertisements. Telephone-in advertisements. Internships. Colleges and universities. Competitors.

Sales Training and Development , Motivating Sales personnel:

WHAT IS SALES TRAINING?

Sales training is the effort an employer puts forth to provide sales people job-relatedculture, skills, knowledge, and attitudes that should result in improved performance inthe selling environments.

PURPOSES OF SALES TRAINING:

Increasing customer satisfaction. Helping salespeople become managers. Orienting new salespeople to the job. Improving knowledge in areas such as product, company, competitors, or

selling skills. Lowering absenteeism and turnover. Positively influencing attitudes in such areas as job satisfaction. Lowering selling costs.

Informing salespeople. Obtaining feedback from salespeople. Increasing sales in a particular product or customer category.


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A SALES TRAINING MODEL DETERMINE HOW TO EVALUATE

TRAINING WHEN PLANNING

PHASE ONE: PLANNING FOR SALES TRAINING

The first step when developing or maintaining an ongoing sales training program isassessing needs. Needs assessment entails determining the training needs of the salesforce and setting objectives for satisfying those needs.

ORGANIZATIONAL ANALYSISFour principles ensure a successful training effort:

Value Focus Mass Duration

OPERATIONAL ANALYSISA difficulty analysis uncovers and analyzes problems salespeopleexperience.SALES PERSONNEL ANALYSISThe behavioral objectives identify the goals of the training program forboth the trainer and the trainee.CUSTOMER ANALYSISIncorporate the voice of the customer.

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MAKING THE NEEDS ASSESSMENT

This requires the following sequence:

1. Identify the requirements of the position.

2. Determine the difference between performance objectives and results.3. Determine why a difference exists.4. Revise the training program (if needed).5. Develop training objectives.6. Conduct the training program.7. Evaluate the training program.8. Revise the training program (if needed).

PHASE TWO: ORGANIZING FOR SALES TRAINING

Training objectives to be accomplished.

Number of trainees. Trainers experience. Each salesperson understands of the subject matter. Each trainees ability to learn and past experience. Training materials available. The costs per trainee of each method. Extent of presession assignments

PHASE THREE: STAFFING FOR SALES TRAINING

WHO IS INVOLVED IN TRAINING?

Corporate staff trainers. Sales force personnel. Outside training specialists.

PHASE FOUR: DIRECTING THE SALES TRAINING EFFORT

TRAINING CULTURE

Sales culture is the set of key values, ideas, beliefs, attitudes, customs, and othercapabilities and habits shared or acquired as a sales group member.

PHASE FIVE: SALES TRAINING EVALUATION

STEPS IN THE EVALUATION

1. Determine what should be measured.2. Determine the information collection method.3. Determine the measurement methods.4. Analyze the data, determine the results, and draw conclusions for making

recommendations.


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Sales meetings and contests:

Meaning & Definition

A meeting of interactive questions

directly aimed at -- Testing product knowledge,- service features and

- Sales policywill clearly show the strengths and weaknesses, and allow you to address any problemareas that would have otherwise gone unseen.

Concepts

The purpose of a sales meeting is to get sales staff ready to sell.

Salespeople hate meetings without an apparent purpose or agenda.

And when no new information is shared, they feel as if they're wasting valuabletime.

It's important that one does not waste salespeople's time, but the person also needsto avoid overloading them with information.

Points of discussion in Sales Meeting

1. Test Product Knowledge

1. Locate Problem Areas in the Sales Process

1. Reinforce Key Issues

1. Address Customer Concerns

1. Prioritize Company Policy

1. Evaluate Service Potential

1. Spotlight New Features and Services


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Sales Meeting Design

Design sales meetings with one primary objective: to raise the bar inattaining greater sales results.

The right meeting design will encourage participants to be fully engaged, solve roadblocks, find creative ways to shorten sales cycles and inspire eachother to sell at a higher level than before.

Designing of Sales Meeting requires:

Detailed agenda planning Theme achievement Breakouts that are engaging and productive Activities to build skills,

Product, service, forecast, presentations will be meaningfuland interesting

Sales meeting would be more fruitful with expert facilitators who knowhow to maintain enthusiasm and participation from your team throughout themeeting.

Facilitators key role can help senior sales managers get the most out oftheir sales meetings by

Participating - not up in front dealing with details. Assessing talent in the room for future action anddevelopment. Focusing on content, not process.

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How to Evaluate Your Sales Meetings and Obtain Evaluation report

In some organizations, every person attending the meeting is asked to

evaluate it. We want the opinion of the salesman. Our meetings arestrictly for him. This pointed statement was made by themanager of an electronics firm. He obtains an evaluation report from every person inattendance.

Other companies get opinions from supervisory personnel only.

The feeling here is that the salesman has no right to

evaluate anything management does, including the manner inwhich it conducts sales meetings. When the salesmen run the company, theres no need forme/ declared a sales manager.

SALES CONTEST

Sales contests should be designed to accomplish specific objectivesover short periods.

Some objectives that sales Contests might have:

To obtain new customers.

To secure larger orders per sales call .

To overcome seasonal sales slumps.

To get higher rates.

To sell a higher percentage of retail, direct, or agency business.

To sell special inventory or packages.

To increase the use and quality of sales presentations.

To secure a higher percentage of renewals .

To improve customer satisfaction (as determined by before-and-after surveys)

There are three requirements for a successful sales contest:
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There must be an increased effort which leads directly to increased rewards forboth salespeople and a company.

Contests in which just salespeople or a company benefits are doomed to failure.

Contests must motivate salespeople to increase their efforts.

Contests must assist salespeople in patterning their efforts along more productivelines and encourage them to continue these good habits past the contest period.

Types of Sales contests

There are two types of contests: direct and novelty.

Direct contests are straightforward, such as "achieve 15 percent higherrates," or "write 20 percent more direct business."

Novelty contests are ones that "hunt for hidden gold," or "win the SuperBowl." Novelty contests are more fun, but many sales managers feel thatthey tend to insult the intelligence of more sophisticated salespeople.Novelty contests tend to work better with younger, less experienced, less jaded salespeople. Novelty contests can be fun for selling specialinventory, special events, or seasonal packages.

Generally, there are four kinds of prizes for sales contests: Cash, merchandise, travel and special honor, recognition, or privileges.

How Many Prizes?

How many prizes are given in a sales contest is an important consideration.

In general, it is best to make it possible for everyone to win something. Thesmaller the staff, the more important this element is in order to avoid destructivecompetition. Have several big winners (first, second, and third place), but alsohave a little something for everyone. Remember, in a six-person sales staff, ifthere is only one winner, five people feel like losersnot a good outcome.

Characteristics of Sales Contests:

Contest Duration. The duration of a contest should be no shorter than fourweeks and no longer than thirteen weeks. Six weeks is a good duration for a salescontestlong enough to effect behavior and billing and short enough so that thesalespeople don't get bored with it. Because contests must be relatively short tomaintain interest, it is difficult to run effective sales contests that require long-term, developmental selling.


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Contest Frequency. Do not use sales contests regularly, because then they areno longer special. In fact, salespeople come to expect the goodies they get fromregularly scheduled contests and to see the rewards not as extras but as a normal part of their compensation package. Also, remember, that the competitiongenerated from a hyped contest can cause morale problems, especially among

those who do not the top prize. Spread out contests to avoid too frequent post-contest lulls. Two sales contests a year is a reasonable frequency.

Standard Setting. Contests help set performance standards. It is vital that non-winners (don't let a sales staff feel like losers) be given clear advice on ways toimprove their performance. Offer additional sales training so non-winners feelthey have a chance to win the next contest.

Promote Contests. Promote contests well to keep the enthusiasm level high.Promote them at all levels of the organization, not just in the sales department inorder to get everyone in the company involved and supporting the salespeople(even include vital support people in prizes). Promote the progress of contests on

a weekly basis. Give feedback on how the individual salespeople or teams are progressing. Weekly bulletins are a vital element of contests in order to givefeedback and to create both awareness and excitement.

Fairness. Fairness is the most important dimension in a contest. Participantsmust believe that a contest is absolutely fair and that no one has an edge at thebeginning.

Simplicity. Sales contests should be designed so that they are easy to understand.Objectives must be clear and progress toward them must be simple and easilyrepresented graphically.

Visibility. Contest progress must be visible to everyone in an office. Amongsalespeople there is often as strong a motivation not to lose as there is to win, sopost progress reports daily so that both those ahead and behind will be continuallyinformed.

Sales force Compensation, Evaluation and Supervision:

PURPOSES OF COMPENSATION

Connect individual with organization. Influence work behavior. Organizational choice. Influence satisfaction. Feedback. Reinforcement.


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EFFECTS OF PAY DISSATISFACTION:

Individuals are satisfied with the rewards they receive in the following terms:

How much reward is actually received in relation to how much wasexpected to be received. How the rewards received compare with what others received. Whether the rewards lead to other rewards. The level of extrinsic and intrinsic satisfaction from the rewards. The value of different rewards.

FORMAL COMPENSATION PROCESS:

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DESIGNING A COMPENSATION PROGRAM:

Compensation plans should have general and specific objectives: Attaining yearly sales volume and gross margins (general). Attaining monthly sales volume and sales on specific products

(specific). Market penetration and exploiting the territorys potential

(General). Call management and development of potential in key accounts as

well as development of new accounts (specific).

Introduction of new products (specific).

DETERMINE MAJOR COMPENSATION FACTORS: Wage level. Wage structure. Individual wage. Administration procedures.

TYPES OF COMPENSATION PLANS:

STRAIGHT SALARY

Of all the compensation plans, the straight salary plan is the simplest: The

salesperson is paid a specific dollar amount at regular intervals.

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

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Service versus selling emphasis

STRAIGHT COMMISSION PLANS

The straight commission plan is a complete incentive plan. If salespeople do notsell anything, they do not earn anything.

Two basic types of commission plans exist:1. Straight commission.2. Draw against commission.

Situations where commission plans can be used: Little nonselling, missionary work involved. The company cannot afford to pay a salary and wants selling costs to be

directly related to sales. The company uses independent contractors and part-timers.

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

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

When to Use a Combination Salary Plan

1. To motivate the sales force.2. To attract and hold good people.3. To direct the sales force efforts in a profitable direction.

KEY INDICATORS FOR POSSIBLE SALES COMPENSATIONPROBLEMS

1. Declining revenues2. Declining market share3. Declining profitability4. Insufficient premier accounts5. High sales force turnover6. Uneven sales force performance7. Inadequate servicing of customers8. Concentrating on easy-to-sell and unprofitable products


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Module-4

Design of Distribution Channel

Distribution channel:

The route by which a product or service is moved from a producer or supplier tocustomers. A distribution channel usually consists of a chain of intermediaries, includingwholesalers, retailers, and distributors, that is designed to transport goods from the pointof production to the point of consumption in the most efficient way. A way ofselling acompany's producteitherdirectly orviadistributors"possibledistributionchannels arewholesalers orsmallretailersorretailchains ordirectmailersor your own stores".Classification of Distribution channels:

1. Sales Channel- which has the functions of motivating buyers, sharing informationbetween the consumer and the company, negotiating fair bargains for the consumer

and financing the transactions.2. Delivery Channel-

A delivery channel represents a delivery endpoint, such as an e-mail server or Webserver. Using the protocol specified by the delivery channel, Notification Servicesdelivers notifications to the delivery endpoint. The delivery endpoint may forward thenotification as appropriate.
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Delivery channels are associated with individual notifications using subscriber devices.When a user creates a subscription, they select a device on which to receive thenotifications. The selection of a device associates a delivery channel with eachsubscription, and ultimately with each notification.

Each instance has one or more delivery channels. Each delivery channel is associated

with one delivery protocol, which Notification Services uses to send notifications andperform other communication with the delivery channel.

When defining a delivery channel, you specify a delivery channel name, specify whichdelivery protocol is used to deliver notifications to the delivery channel, and anyarguments required by the delivery protocol, such as server name, user name, andpassword.

If you are configuring an instance of Notification Services through XML, specify thedatabase name in the instance configuration file (ICF). If you are configuring an instanceof Notification Services programmatically, use Notification Services ManagementObjects (NMO) to specify the database name.

3. Service Channel- which performs after sales service like a Maruti service

station.

Distributors: A company that sells a variety of products to a customer. Many companiessell products to a distributor before they reach the final customer.Dealers: A person or business firm acting as a middleman to facilitate distribution ofsecurities or goods. Typically, a dealer buys for his or her own account and sells to acustomer from the dealer's inventory. Thus a dealer acts as a principal ratherthan as anagent. The dealer's profit or loss is the difference between the price he pays and the pricehe receives for the same security or goods. The same individual or company may, at

different times, function as a dealer or as a broker, who buys and sells for his clients'accounts.Agents: Middlemen that provide a risk-free procurement function by not taking title tothe merchandise they buy or sell for their customers.Patterns of Distribution:1. Intensive Distribution:

Marketing strategy under which a firmsells through as many outlets as possible, sothat the consumers encounter theproduct virtually everywhere they go: supermarkets,
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drugstores, gasstations, etc. Soft drinks are generally made available through intensivedistribution.2. Selective Distribution:

Selective Distribution is a form of market coverage in which a product is distributedthrough a limited number of wholesalers or retailers in a given market area.

3. Exclusive Distribution:Offering a product for sale only in one outlet or the outlets of a single company. For

example, Kodak announced in early 2007 that the firm's new line of Easy Share printerswould be available only in Best Buy stores for the first three months.

Activities that a typical distribution channel performsSpatial Discrepancy: Spatial Discrepancy is defined as the discrepancy that existsbecause of the physical distance between the location where a product is manufacturedand the location where the product is eventually consumed.Temporal Discrepancy: Temporal Discrepancy is defined as the discrepancy that exists because of the inevitable difference in the point in time at which a product ismanufactured and the point in time when the product is consumed. Temporal

Discrepancy, like the spatial discrepancy, is also caused due to the concentrated nature ofthe manufacturing activity.

Management of Channels

Selecting channel membersCompanies need to select their channel members carefully. To customers, the channelsare the company.Training channel members

Companies need to plan and implement careful training programs for their intermediaries.Motivating channel membersA company needs to view its intermediaries in the same way it views its end users. Itneeds to determine intermediaries needs and construct a channel positioning such that itschannel offering is tailored to provide superior value to these intermediaries.Evaluating channel members

Producers must periodically evaluate intermediaries performance against such standards

as sales-quota attainment, average inventory levels, customer delivery time, treatment ofdamaged and lost goods, and cooperation in promotional and training programs.Modifying channel arrangements

A producer must periodically review and modify its channel arrangements. Modificationbecomes necessary when the distribution channel is not working as planned, consumer buying patterns change, the market expands, new competition arises, innovativedistribution channels emerge, and the product moves into later stages in the product lifecycle.
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Conflict, Cooperation and Competition

Types of conflict & competition

Vertical channel conflict exists when there is conflict between different levelswithin the same channel. Horizontal channel conflict exists when there is conflict between members at thesame level within the channel. Multi-channel conflict exists when the manufacturer has established two or morechannels that compete with each other in selling to the same mkt.

Channel Conflict:

Channel conflict can be defined as any scenario where two different channels competefor the same sale with the same brand. Conflict can take the form of a direct sales forcecompeting with an independent distributor, two different types of competing distributors,

two like distributors competing for the same sale, or all of the above.

A few facts about achieving an appropriate balance between coverage and conflict:

Lack of any channel conflict in a marketing strategy usually indicates gaps in

market coverage Conflict cannot be eliminated. The goal of marketing management must be to

optimize market coverage and manage a healthy level of channel conflict so that itdoes not become destructive

Market share erosion and declining street prices are evidence that channel conflictis becoming destructive. Channels are responding to excessive competition by de-emphasizing the brand or by giving away too much in order to keep an account

Every manufacturer will likely face destructive channel conflict at some point. Asmarkets evolve and mature, many manufacturers will be required to add new,lower-cost channels in order to cover all major market segments. Often,destructive conflict arises because changes in the manufacturer's go to market

strategy lags the market changes associated with market evolution.

1.Causes of Channel Conflict

Channel conflict can also occur when there has been over production. This results in asurplus of products in the market place. Newer versions of products, changes in trends,insolvency of wholesalers and retailers and the distribution of damages goods also affectchannel conflict. In this connection, a company's stock clearance strategy is of
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importance. To avoid a channel conflict in a click-and-mortar, it is of great importancethat both channels are fully integrated from all points of view. Herewith, possibleconfusion with customers is excluded and an extra channel can create businessadvantages.

2.Causes of channel conflict

Goal incompatibility Unclear roles & rights Differences in perception Intermediaries' great dependence on the manufacturer

Minimizing Channel ConflictSeveral ways manufacturers can minimize channel conflict. Once the decision has beenmade to sell direct to consumers online, lower levels of channel conflict will beexperienced:

1. By not pricing products on their web site below the resale price of their partners.2. By diverting fulfillment of orders places on their web site to their partners.3. By promoting partners on their web site.4. By encouraging partners to advertise on their web site.5. By limiting the offering on their web site to a subset of their products.6. By using a unique brand name for products offered on their web site.7. The earlier the products offered on their web site are in the demand lifecycle.8. The more effectively they communicate their overall distribution strategy.9. The more effectively they coordinate their overall distribution strategy.10. The more they make use of super ordinate (over-reaching) goals.Channel conflict is an integral part of your channel strategy, so you must examine your

market position and channel strategy before attempting to manage it. Taking a closer lookat the problem often reveals that the perceived channel conflict issue masks a largerchannel strategy issue. So prior to executing solutions to address channel conflict, themanufacturer is encouraged to examine all elements of its overall channel strategy,including pricing, end user segmentation, channel support programs, company policies,etc. Have you created a conflict situation through the design or implementation of theseother components of channel strategy?


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Destructive channel conflict is managed through economics and structural controls.Economics motivate the channels to avoid conflict. Structural controls lay the groundrules within which conflict is managed. With each tactic, communication before conflictarises is critical.

The right economic solution is dictated by the type of conflict being faced, themanufacturer's market and channel position, and the company's strategic goals. Economicapproaches include;

Dual compensationapplied when conflict exists between direct and indirectchannels. The goal is to move the indirect channel from a position ofpotentialadversary for the direct sales force to one of "partner" for the direct sales force

Activity based compensation or discountused to manage cross-channel conflictor conflict between channels of differing cost structures and capabilities. Activitybased discounts are applied by paying a channel a specific discount if it performsa measurable task or function. These discounts allow the "high-cost" channel to

compete against "low-cost" channels for those customers who value the highsupport

Shared coststhe key difference between this concept and functional discounts isthat functional discounts compensate the channel for incremental tasks via adiscount on product sold, while shared costs pay directly for the task

Compensation for market shareusually applied to direct versus indirect conflict,

the direct sales rep is compensated based on total market share in a territory. Thegoals of the sales rep are based on direct and indirect volume, thus motivating thedirect rep to "partner" with indirect channels to maximize territory volume

Structural controls are only as effective as their enforcement. There is no value unlessyou are willing to clearly spell out the controls at the outset of the channel agreement andenforce the stated penalties to all channel members. The structural controls are typicallyapplied to:

Accountsyou specify "named" or "house" accounts where indirect channels canexpect to compete with your direct channels. Named accounts are usually

specified based on end-user sourcing capabilities, channel ability to meet end-userbuying requirements, and volume and strategic value Productschannels can qualify for franchising by product line/category across

your company's offering. Product qualification is usually based on end-userproduct support needs, channel support capabilities, "fit" or positioning of theproduct category in the channel's overall business, and strategic considerations


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Geographyas a manufacturer, you can specify those geographies/account typesin which you will provide sales support to the channel. These geographies areusually defined by granting the channel a primary area of responsibility

The successful marketer combines the elements of economic and control-related solutions

that best address conflict challenges framing them in an understanding of marketposition, channel position, and strategic goals.

Channel conflict can also occur when there has been over production. This results in asurplus of products in the market place. Newer versions of products, changes in trends,insolvency of wholesalers and retailers and the distribution of damages goods also affectchannel conflict. In this connection, a company's stock clearance strategy is ofimportance. To avoid a channel conflict in a click-and-mortar, it is of great importancethat both channels are fully integrated from all points of view. Herewith, possibleconfusion with customers is excluded and an extra channel can create businessadvantages.

Managing channel conflict

Some channel conflict can be constructive. It can lead to more dynamicadaptation to a changing environment. But too much is dysfunctional. Perhaps the most important mechanism is the adoption of super ordinate goals.Working closely together might help them eliminate or neutralize the threat. Exchange of persons between two or more channel levels is useful. Cooptation is an effort by one organization to win support of the leaders ofanother organization by including them in advisory councils, boards of directors, etc. Encouraging joint membership in & between trade associations. When conflict is chronic, the parties may have to resort to diplomacy, mediationor arbitration.

Legal & Ethical Issues in Channel Relations

Exclusive dealing Exclusive territories Tying agreements Dealers' rights
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Motivating channel members

Constant training, supervision & encouragement. Producers can draw on the followingtypes of power to elicit cooperation:

Coercive power. Manufacturer threatens to withdraw a resource or terminate arelationship if intermediaries fail to cooperate. Produces resentment. Reward power. Manufacturer offers intermediaries extra benefits for performingspecific acts. Legitimate power. Manufacturer requests a behavior that is warranted by thecontract. Expert power. Manufacturer has special knowledge that the intermediaries value. Referent power. Intermediaries are proud to be identified with the manufacturer.

Channel SystemConventional marketing channel

Comprises an independent producer, wholesaler(s) & retailer(s). Each is a separate entity. No channel member has complete or substantial control over the other members.

Vertical Marketing Systems

1. Producer, wholesaler(s) & retailer(s) act as a unified system.2. They all cooperate.3. Can be dominated by any of the three members of the system.4. It arose as a result of strong channel members' attempts to control channel

behavior & eliminate the conflict that results when independent channel memberspursue their own objectives.

5. Has become the dominant mode of distribution in the U.S. consumer marketplace.

3 types of VMS:

1. Corporate VMS

Combines successive stages of production & distribution under single ownership.(Sears).


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2. Administered VMS

Coordinates successive stages of production & distribution through the size &power of one of members (Kodak, Gillete, P&G)

3. Contractual VMS Wholesaler-sponsored voluntary chains Retailer cooperatives Franchise organizations

Independent firms at different levels of production & distribution integrating theirprograms on a contractual basis to obtain more economies &/or sales impact thanthey could achieve alone. 3 types:

Horizontal-Marketing-Systems

Two or more unrelated companies put together resources or programs to exploit anemerging-marketing-opportunity.

Multichannel-Marketing-SystemsA single firm uses two or more marketing channels to reach one or more customersegments. By adding more channels, companies can gain 3 important benefits: increasedmkt coverage, lower channel cost, more customized selling.

Roles of individual firms in the channel

Insiders. Members of the dominant channel. Strivers. Firms seeking to become insiders. Complementers. Not part of the dominant channel Transients. Outside the dominant channel & do not seek membership. Short-runexpectations. Outside innovators. Real challengers & disrupters of the dominant channels.

Wholesaler Marketing Decisions

Definition of Wholesaler

A distributor or middleman who sells mainly to retailers and institutions, rather

than

consumers.

Functions of Wholesalers

The primary functions performed by the wholesalers are as follows:

He assembles varieties of goods from different producers. In case of agriculturalgoods, he collects small quantities of goods from numerous small-scale producersand store in his godown.
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He stores the assembled goods in proper warehouse till the goods are sold.Warehousing or storing of goods fills up the time gap between the production andconsumption.

He distributes the assembled goods to the retailer or to the consumer directly. Hethus helps in the dispersion process of marketing.

Documents

Study Material - SDM