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Chapter 1

Introduction to Sales Management

Personal selling strategies


1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Willingness to go to bat for the buyer within the supplier firm Thoroughness and follow through Knowledge of the sales persons product line Market knowledge and keeping the buyer posted Applying his product and services to buyers needs Knowledge of the buyers product line Preparation for sales calls Regularity of Sales calls Diplomacy in dealing with operating departments Technical education

Evolution of personal selling


Negotiation Persuasion Consultative Selling Business Manageme nt Partnership Strategies

Marketing concepts
1) 2) 3) 4) 5) Production concept Product concept Selling concept Marketing concept Societal concept

Societal marketing concept

Production

Sales

Customers

(Sales Orientation)

Customer Needs

Production

Sales

(Marketing Orientation)

Emphasis on Sellers Needs


Emphasis on Custom er Needs

Nature and role 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 strategies with key customers
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Types of personal selling


Industrial selling Retail selling Services selling

Types of selling
Order taker sales people Order creators Order getters

Types of Selling
Inside Order Taker Order Takers Delivery Sales People

Outside Order Takers


Selling Function Order Creator s Missionary Sales People New Business Sales People Organizational Sales People Consumer Sales People Sales Suppor t Sales people Technical Support sales People Merchandisers
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Front Line Sales People Order Getters

Difference between sales and marketing


Starting point
Factory

Focus
Factory

Means
Selling and promoting

Ends
Profits though sales volume

Selling concept
Market Customer needs Coordinated marketing Profits through customer satisfaction

Market concept

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MARKET ANTICIPATION Marketing mix

Producer
Marketer

Product Price Place Promotion

Consumer

Exchange offer of value

Marketing management process


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Sales management process


Formulation of a strategic sales programme Implementation of the sales programme

Evaluation and control of sales force performance

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Technology

Customer orientation

Emerging trends in sales management


Technology

Relationship selling

Global and ethical Issues

Diversity

New selling methods

Emerging trends in sales management


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Chapter 2

Selling Skills and Strategies

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Selling and buying styles


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Concern for the customers
(1,9) People Oriented

(9,9) Problem Solving Oriented I consult with the customer so as to inform myself of all the needs in his situation that my products can satisfy. We work towards a sound purchase decision on his part, which yield him the benefits he expects from it.

I am customers friend,

8 7

6
5 4 3 2

I want to understand him and respond to his feelings and interests so that he will like me. It is the personal bond that leads him to purchase me. (5,5)from Sales technique Oriented
I have tried an effective routine for getting a customer to buy. It motivates through a blended personality and product emphasis (1,1) Take it or Leave it I place the product before the customer and it sells itself as and when it comes.

(9,1) Push the product Oriented I take challenge of the customer and hard sell him, polling on all the pressure it takes to make him buy

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Selling situations
Sales task and function Maintenance selling Developmental selling

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Selling skills
Problem solving skills Effective communication skills

Selling Skills

Listening Skills Negotiation and bargaining skills Conflict management and resolution skills
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Communication process
Feedback Intended Message Perceived Message

Encoding

Decoding

Noise

Sent Message

Received Message

Channel

Sender

Receiver
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Communication process
contd.

Managing body language:


Personal Appearance Posture

Gestures
Facial Expressions Eye Contact Space Distancing
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Process of listening
Attendance Interpretation

Remembrance
Evaluations Response Action
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Levels of listening
Feedback Paraphrasing

Clarifications
Emphatic listening

Active Listening
Barriers to Listening !
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Conflict management skills


Models of conflict Components of conflict The conflict resolution process:
- lumping - avoidance - coercion - meditation - conciliation - arbitration - adjudication - negotiation
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Conflict management process


Stage I
Potential opposition or Incompatibil ity

Stage II
Cognition &
Personalization

Stage III
Intentions

Stage IV
Behaviour

Stage V
Outcomes

Antecedent Conditions Communication Personal Variables

Perceived Conflict

Conflict handling Intentions Competing Collaboration

Increased group performan ce


Overt Conflict

Felt Conflict

Compromising
Avoiding Accommodating

Partys behaviour Others reaction

Structure

Decreased group performan ce


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Negotiation skills
Situation and timing for negotiations Formulation for a bargaining strategy The theory and strategy of principle negotiations
separate the people from the problem focus on interests, not on positions invent options for mutual gains insist on objective criteria
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Problem solving skills


Habit I: be proactive Habit 2: begin with an end in mind Habit 3: put first things first Habit 4: think winwin Habit 5: seek first to understand, then to be understood Habit 6: synergize Habit 7: renewal
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Problem solving process


Define the problem Generate alternative solutions

Decide the solution


Implement the solution Evaluate the solution
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Problem definition techniques


Statement and Restateme nt 5 Dunkers diagram 4 Present desired state 3 analysis

Problem Definition Techniques


Evaluate problem 6 statemen t Explore the problem 2 Find out origin of the problem 1
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Dunkers diagram
Achieve the desired state

General Solution
Possible path to the desired state

Path 1

Path 2

Path 3

Functional Solution

Solutions to implement & paths to desired solutions

Solution 1

Solution 2

Solution 3

Specific Solution

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Statement restatement technique

Relax Constraints

Perceived problems

Generalize

Make an Opposite Statement

Re Statement

Re Statement

Final problem Statement


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Components of a decision on the future course of action


Situation analysis

Problem analysis Past What is the fault

Decision analysis

Potential problem Analysis Future How to prevent future faults?

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Solution implementation process


Decision on the best solution
I M P L E M E N T A T I O N
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Approval

Planning
Carry through

Follow up
Evaluation

Chapter 3
The Selling Process

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Stages in the selling process


Preapproach before the interview Handling Customer Objection s

Pre-sale preparati on

Prospecting

Approach to the customer

Follow up action

Closing the Sale

Sales Presentat ion

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Prospecting
Successful prospecting
50 potential prospects 15 Qualified prospects 6 Interviews 1 sale 50 potential prospects 25 Qualified prospects 17 Interviews 7 sales

No
Successful prospecting

Yes

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Process of prospecting
Identify and define prospects

Search for sources of potential accounts

Qualify the prospects from the suspects


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Methods of prospecting
Cold canvassing

Endless chain customer referral Prospect pool Centers of influence Non competing sales force Observation Friends and acquaintances Lists and directories Direct mail Telemarketing Trade shows and demonstrations
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Selling process
Pre approach to selling Approach to the customer Sales presentation - approach to sales presentation
- attracting customer attention - creating interest - arousing desire and building conviction

Methods of sales presentation


- canned presentation - organized presentation - tailored presentation

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Handling customer objections


Suggested by SMITH
Start with your highest expectations

Avoid conceding first BE sure the customer understands the value of a


concession

Make concessions in small amounts Admit mistakes and make corrections willingly BE prepared to withdraw a concession Avoid split the difference strategy Do not advertise willingness to concede
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Methods of handling customer objections


Superior feature method YesBut method Reverse English method Indirect denial method Pass out method Comparison method Direct denial method Another angle method Narrative method Testimonial method Question or WHY method
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Closing the sale


Methods of closing the sale

Follow-up action

B2B selling

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Chapter 4

Managing Sales Information

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Forecasting market demand


It is the estimated rupee or unit sales for a specific future time Period based on the companys marketing plan and an assumed marketing environment.
Price/ Un it
Qty per Uni t (A) Price / Un it
Q1 Q2

Price/ Un it

D1

P1 P2

Qty per Un it (B)

Price/ Un it

Total Market deman d


Qty per Unit
D D1

Price / Un it

D2

Price/ Un it

D2

Qty per Unit (D)

Qty per Unit (E)

Qty per Unit (f)

Market demand curve


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Market demand function


QD = F (P, I, P0, T)

P- Price of the product I- Consumer Income T- Consumer preference P0 Price of other goods and QD = B + aP P + a1I + a0P0 + aTT services aP,, a I, a0, aT represents the one unit change in quantity associated with the variables.

Linear form of the demand QD = B + aP P equation


B represents the combined influence of all the other determinants of the demand
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Market demand forecasting


marketing decision support system
- an MDSS is an ongoing future-oriented information structure designed to collect, collate, categorize, edit, store, and retrieve information on demand to aid decision making in an organizations sales and marketing programme

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Marketing decision support system

TRANSACTIONAL SYSTEMS

USERS

MDSS

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Forecasting process
The forecasting process is defined as the series of decisions and actions taken by a business organization in:
identifying the forecasting objectives determining the independent and dependent variables developing a forecasting procedure using the available data in the selected method to estimate the sales in future

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Forecasting process
contd. Determine independent and dependent variables Develop forecasting procedure Forecast objectives

Select forecasting analysis method Comprehend total forecasting procedure Collect, collate, gather and analyze data

Evaluate performance results against the forecasts

Present all the assumptions about data

Make and finalize the forecast

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Popular methods in forecasting


Qualitative methods
Sales force composite Delphi technique
History analogy

Expert opinion

Survey of buyers expectation

Quantitative methods

Test marketing

Nave method

Trend method

Moving average

Regression method

Exponential smoothening
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Trend forecast of Sales


Observed sales Forecasted sales

Sales

Time
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Nave method
Sales (at the period t) = Sales T+1 The following formula shows how to adjust the nave method to account for a change in rate of sales levels. The formula is stated this way: Next Years Sales = This Years Sales X This Years Sales Last Years Sales Freehand Method

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Method of semi-averages
In this method available data are divided into two parts, usually with equal number of years on both the parts Year
1993 1994 1995

Sales
102 105 114

1996 1997
1998 1999

110 108
116 112 102+105+114 321 ----------- = -------- = 107

The average of the first three years will be:


3 3

Similarly, for the last three years,


108 + 116 + 112 336 ---------------------- = --------- = 112 3 3
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Method of moving averages


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

Method of Least Square


The least squares method is a formalization of the eyeballfitting or graphical technique. It is used to mathematically project the trend line to the forecasting period with the time as the independent variable that influences the dependent variable i.e sales.

Decomposition method
It is a time series method in which seasonality is taken in to account while doing demand forecasting. This method consists of three essential steps which are illustrated below.
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Exponential smoothing method (contd.)


It is similar to the moving- average forecasting method The forecaster is allowed to vary the weights assigned to past data points It allows consideration of all past data, but less weight is placed on data as it ages Exponential smoothing is basically a weighted moving average of all past data The method is used to forecast only one period in the future Exponential smoothing techniques vary in terms of how they address trend, seasonality, cyclical and irregular influences

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Exponential smoothing method contd.


Next Years Sales = a (This Years Sales) + (1 a) (This Years Forecast)

Autoregressive moving averages


It uses a different procedure than the other models explained above in identifying the proper number of past observations to be included in the analysis and the weights that should be attached those observations

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Correlation analysis
a correlation is basically the degree of linear association between two variables where one variable is treated as independent variable and sales as the dependent variable sales managers look for variables that correlate with or relate to sales correlation analysis involves the determination of whether a relation exists, and if it does, then measuring it, testing whether it is significant, and establishing the cause and effect relation the degree of relationships between the variables is called co-efficient of correlation
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Regression analysis
regression analysis is another form of correlational technique reveals average relationship between two variables and this makes possible estimation or prediction a statistical method used to incorporate independent factors that are thought to influence sales into forecasting procedures
Sales Sales

Population (Liner Relationship)

Population (Curvilinear Relationship)


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Market factor indices methods


the most commonly used market factor index method is Buying Power Index Method (BPI) BPI is used to predict sales for specific geographic regions for retailer and FMCG sector such as clothing, food, auto, and other consumer items BPI is also used to determine sales quota by many multinational organizations applications are limited in Indian organizations as we do not have data bases to support this method at different levels of the market
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Market factor indices methods


contd.

Econometric techniques
Econometric techniques uses multiple independent variables where the assumption is that of a liner equation between the dependent variable (sales) and independent variables

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Market factor indices methods


contd.

Factors affecting selection of a forecasting technique

data availability cost variability consistency of the data the degree of detail necessary time horizon technical sophistication ability of the method to capture the level of risk and variability the level of accuracy of the forecast fundamental change indicators
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MAPE (Mean Absolute Percentage Error)


level of accuracy is an explanation of the gap between the actual and predicted sales techniques with lower level of gap are more accurate statistic used to calculate the level of accuracy of a forecast is called MAPE (Mean Absolute Percentage Error) MAPE is the average percentage forecast error and is a popular way to measure accuracy

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Chapter 5

Sales Organization

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Sales organization
an organization of individuals either working together for the marketing of products and services manufactured by an enterprise or for products that are procured by the firm for the purpose of reselling a sales organization defines duties, roles, rights, and responsibilities of sales people engaged in selling activities meant for the effective execution of the sales function

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Sales organization
contd.

a structural body through which the functions of sales management are carried out sales organization always makes efforts to increase sales, thereby achieving the principle of profit maximization, which contributes to the overall growth of enterprise

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Factors influencing structure


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
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Organizational principles
span of control unity of command hierarchy of authority

stability and continuity


coordination and integration homogeneity objectivity specialization
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Organizational design
formal and coordinated task assigning territories establishing flows of communication and responsibilities of sales groups and individuals to customers effectively

Line organization

Mr. Ratnakar Shetty President / Owner Mr. Chandrakant VP (Sales)

Five sales people

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Typical structure of a line organization


Consumer market National Distribut ors Direct marketi ng Institutional market Corporate market

Direct to Home

Distributors

Bundling

Gifting

Regional Distributors

Consumer

Retailers

Consumers
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Design by territory
VP Marketing National Sales Manager

Divisional Manager (East) Regional Sales Manager

Divisional Manager (North) Regional Sales Manager

Divisional Manager (West) Regional Sales Manager

District Sales Manager

District Sales Manager

District Sales Manager

Sales Staff (City wise)

Sales Staff (City wise)

Sales Staff (City wise)


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Design by management function


Mr. Dara singh, VP (Marketing)

Staff Function

Line Function

Mrs. Chitra Mohanty (Advt / Sales Promotion Mgr)

Mr. Dibya Behera (Sales Manager)

Mr. Chandra De Manager (MR)

20 Sales People

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Design by product
President, Marketing

Product Manager (A)

Manager (Sales) Product Manager (B)

Manager (Training)

Manager (Promotion)

Manager (Sales)

Manager (Training)

Manager (Promotion)
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Design by customer
President (Marketing) Vice President (Marketing)

Sales Manager Industrial Relations

Sales Manager Wholesalers

Sales Manager Retail Sales

Sales People

Sales People

Sales People

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President

Functional

Vice President (Production)

Vice President (Marketing)

Vice President (HRD)

Geographic Marketing Manager


India G.M Consumer care

Marketing Manager Combined International Sales Org. Design G.M International Sales Divisional Manager Food

Customer

G.M International Sales Divisional Manager Paper

Divisional Manager Soaps

Product

Eastern Sales Division

Western Sales Division

Northern Sales Division

Europe Division

America Division

Gulf Division
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Sales Organization
Key account sales
- focus on CRM - customer profitability and value analysis - the few accounts give incremental returns - national accounts

Sales process automation


- EDI Electronic Data Exchange

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Emerging organizational design


agency and distribution selling

shared sales force


telemarketing TQM and team-based selling
Customer

Sales

Marketing

Technical Support

Manufacturing

Supplier selling team


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Number of sales people


determined by:
- territories vary in their demand structure for prospecting - product mix demands - levels and types of prospecting - nature of the customer segments
Affordability method (based on sales budget)
Incremental method Workload method Number of sales people =
(Number of existing customers )
(Number (Ideal (Length of of X X frequenc X a call) Potent y of ial calls) custo Ideal selling time mers) available for a salesperson
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Chapter 6

Management of Sales Territory

77

Sales territory

a group of present and potential customers assigned to an individual

sales person, a group of sales person, a branch, a

dealer,
a distributor or a marketing organization at a given

period of time

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Sales territory

(contd.)

Advantages of designing a sales territory :


it ensures better market coverage effective utilization of the sales force efficient distribution of workload among sales people it is convenient to evaluate the performance of sales people to control over the direct and indirect costs of the sales function optimum utilization of sales time by sales people
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Factors influencing the modificatio ns of a territory:


mergers market consolidation split in division sales force turnover customer relocations product life cycle change product line change

Designing sales territories


Select the basic geographic control units Decide on the criteria for allocation Decide on the starting point Combine control units adjacent to starting point Compare territories on allocation criteria and conduct workload analysis Assign sales force to new territories

Modify territorial boundarie s to balance workload and potential


80

Territory shapes

circle

wedge

Clover leaf

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Strategic Planning Matrix


Opportunity

Opportunity
The account may represent a good opportunity. The sales organization needs to overcome its competitive disadvantages and strengthen its position to capitalize on the opportunity. Either direct a high level of sales resources to improve the position and to take advantage of the opportunity or shift resources to other accounts.

i g h

The account offers a good opportunity. It has high potential and the sales organization has a differential advantage in serving it.

Strategy
Commit high levels of sales resources to take advantage of the opportunity.

Strategy

L o w

Opportunity
The account offers stable opportunity since the sale organization has differential advantages to serving them.

Opportunity
The account offers little opportunity. Its potential is small and the sales organization is at a competitive disadvantage in serving it.

Strategy
Allocate a moderate level of resources to maintain current advantage.

Strategy

Strong

Either commit a minimal level of resources to the account or consider abandoning the account altogether.

Weak

82

Sales territories
New Territories..?
Use of Information Technology IT enabled services computer programmes simulation techniques

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Chapter 7

Management of Sales Quota

84

Sales quota
a quota is an expected performance objective a quota is a sales assignments or goal to be achieved in a specific period of time it is routinely assigned to the sales units (e.g. departments, divisions, and individuals) sales units proceed to reach quotas in their respective domains
A sales quota is the sales goal set for a product line, company division, or sales representative. It is primarily a managerial device for defining and stimulating the sales effort.. Kotler
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Principles of quota setting


setting of sales quotas is a challenge to the sales manager and should be handled with precision and adequate skill objectivity to be observed while fixing quotas and should be based on facts and figures drawn from the market it must be simple to understand both to the and the sales people manager quotas set above the achievable limit often demotivate and result in high turnover in the organization
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Principles..
contd.

flexible to the prevailing and emerging market conditions there should be a level of definiteness in the quota set for a salesperson it should be fixed either in terms of geographic territory, on money value, or on the basis of units of product(s) a participatory quota setting procedure followed jointly by the sales manager and sales people together serves as a tool of motivation and leads to the realization of the organizational sales goals
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I P E T R M E A T E SPECIFIC E C S A A I U I L F R N I I A A S SBO B T B C L L I MBO in the Sales E E C domain?


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S M A R T

Organization of the sales job


Defining annual objectives

Individual Goal setting form

Procedure for setting sales quota


Output Name Year Your territory Results expected Pessimistic Realistic 1. Volume per month 2. Expenses per month 3. Gross margin per month 4. Market share per month 5. Key account coverage per month

Optimistic Results

Conferencing with each sales person


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Types of sales quota


sale volume quota quota sales budget sale activity

quota combination quota

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Methods of setting sales quota


Quotas are based on
sales forecasts and potentials forecast past sales and experience executive judgment

sales people judgment


compensation
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Problems in setting sales quota


1. There is a high level of individual difference in every organization 2. A perfect quota is a combination of selling and nonselling activities 3. Often sales people do not give proper attention to the non-selling activities (e.g. searching for prospects, handling customer objections, and creating market for probable entry of new products)

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Chapter 8

Recruitment and selection of the sales force

93

The sales manager


performs sales management +HR management ! recruits, selects, trains, motivates, leads, controls, and compensates sales teams selection and recruitment of efficient sales people is always a process of building competitive advantage for an organization

94

Turnover Establish hiring objectiv es Planning

Strategic position analysis Decide on the number of people to hire

Job qualification
Job description

Identify best sources of recruitment: internal and external sources Recruitment Generate database of candidates Evaluate candidates Selection Socialization Select and induce candidates to accept positions Socialize

Organizational characteristi cs, company image and climate, styles of supervision, compensatio n, and motivation of the company

The hiring process


95

Challenges in sales force selection


personality types matching to job profiles one of the measures that the organization looks in an employee is:
- the ability to perform by an employee = ability x motivation

level of motivation

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Planning for recruitment


1. Strategic position analysis 2. Turnover 3. Job analysis
gathering and organization of information concerning the tasks, duties and responsibilities of a specific job

3. Task inventory analysis and KSA matrix


job qualification job description
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Sales force recruitment


recruitment is an act of inducing qualified and appropriate people to get interested in and apply for a salespersons position within a sales organization

internal sources

- existing employees - lateral and upward moves - interns and cooperative students - employee referral programmes

external sources
- industry sources
-

educational institutions and campus recruitments - employment exchanges - placement consultants - walk in interviews
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External sources

contd...

- networking referrals - web consultants - responses to direct open advertisements

Selection procedure
- inviting application forms - personal interviews - reference checks - physical examinations - psychological tests - intelligence - personality - aptitude and skills - determination of terms of service - appointment - initial orientation
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Socialization process
process of orienting a new salesperson to the sales organization, territory, or division in which he or she will be working three stages
Anticipatory stage Encounter stage Settling stage
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Chapter 9

Training the Sales Force

101

Challenges in sales training


Will the training programme be effective in solving a problem? Will the investment in it be justified? Will it produce the desired or intended results?

102

Role of the trainer


The success of the training programme depends on the ability, skill, and motivation of the sales trainer

103

The training process


Training need assessment

Design and conduct of a training programme

Evaluation of a training programme

104

Training need assessment phase


Organizational level analysis
Task level analysis

Individual level analysis

105

Training needs
Identification of specific problems Anticipating impending and future problems Management requests Interviewing and observing the personnel on the job Performance appraisal Questionnaire survey Checklist Attitude survey Interpersonal skill test
106

Designing and conduct phase


Location Job Instruction Training (JIT) Presentation options

107

Types of training
Cross-functional training
Team training

Creativity training
Literacy training

108

Training methods
Didactic method
- structure the lecture - reinforce the Message - aid concentration - material used for the lecture - make it memorable for the participants - deliver with dynamism - use questions

Visual support Participative Conferences


109

Training methods
Seminars Discussions Role play Case study Fishbowl Workshops Sensitivity training Transaction analysis In-tray exercises Transcendental meditation

contd..

110

Deciding a sales training programme


Aim

Content
Contents Knowledge Proficiencies Location Evaluation
111

Process of socialization
Anticipatory socialization
Accommodation stage Outcome stage

112

Chapter 10
Sales Force Motivation

113

Process of motivation

Motive

Behaviour

Tension reduction

Goal
114

Motives
Primary General Secondary

115

Motivational drives
Principles Security Achievement Approval Loyalty Advancement Leadership Human behaviour

116

Theories of motivation
Content Process Reinforcement

117

Content theories
Need hierarchy theory Hertzbergs two factor theory Alderfers ERG theory

McGregor Theory X and Y


Z theory of William Ouchy

118

Maslows hierarchy of needs


Self actualisation need
Esteem need Social need Security need Physiological need
119

Process theories
Equity theories Expectancy theories

120

Reinforcement theories
Hulls drive theory
Skinners reinforcement theory

121

Factors influencing the motivation of the salesperson

Personal characteristics
Environmental conditions

Organizational policies

122

Designing a motivational programme


Programme objective Motivational tools Individual methods

Group methods
Communication

Auxiliary environment
Feedback
123

Chapter 11
Sales Force Compensation

124

Factors influencing the design of a compensation plan


Financial stability Size of the market Nature of the product

125

Types of compensation plans

Financial compensation
Non-financial compensation

126

Financial compensation

Straight salary plan Straight commission plan Bonus and incentive Salary plus incentive (combination plan) Drawing account and commission plan Allied methods
127

Non-financial compensation

Promotions Recognitions programmes Fringe benefits Expense accounts Perks

Sales contests
128

Steps in designing a compensation plan


Determine sales force and compensation objectives


Determine major compensation issues Implement long-term and short-term compensation plans Relate rewards to performance Measurement of performance Appraise the compensation plan
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Chapter 12

Evaluation of the Sales Force

130

Deciding on the criteria for measuring performance Deciding in the conduct of the performance appraisal Deciding on the evaluation of individuals and teams Comparison of actual performance with standards Deciding on the frequency of the performance appraisal The external variables and their influences

Sales force performance appraisal process


131

Sales force performance appraisal process


Appraisal criteria Relative and absolute judgments Trait-based Outcome-based Behaviour-based Performance rating Force choice scales Behavioural observation scales Call reports Silent call monitoring scores Activity reports Combinational methods
132

Conduct of performance and individual vs team appraisal Example of a Role result Matrix
Position Developing a new business Servicing existing customers Key account manager Regional sales manager

Application engineer
Customer service staff Technical support staff Installation and quality engineer Financial staff
133

Chapter 13
Distribution channel management - an introduction

134

Role of distribution channels


To adjust the discrepancy of assortment through the process of sorting, accumulation, allocation, and assorting To minimize the distribution costs through reutilizing and standardizing transactions to make exchange more efficient and effective To facilitate the searching process of both buyers and sellers by structuring the information essential to both the parties To provide a place for both parties to meet each other and reducing uncertainty

135

How do distribution channels contribute


Intermediaries can improve the efficiency of the exchange process Channel intermediaries adjust the discrepancy of assortment through the performance of the sorting process Marketing intermediaries hang together in channel arrangements to provide for the reutilization of transactions Channels facilitate the searching process

136

Discrepancies in the process of exchange

Spatial discrepancy
Temporal discrepancy Need to break the bulk Need to provide assortment

137

The cost and control aspects of intermediation


Cost efficiency

Control

Direct Distribution

Indirect distribution

138

Distribution channel strategy


Setting distribution objectives in terms of the customer requirements Finalizing the set of activities that are required to be performed to achieve the channel objectives Organizing the activities so that the responsibility of performing the activities is shared among the entities who are meant to perform these activities Developing policy guidelines for the smooth functioning of the channel on a day to day basis
139

Distribution channel management


(contd.)

Distribution channel management encompasses all activities dealing with the distribution function of the firm The distribution strategy provides guidelines for decision making The distribution management function can be viewed as happening in two phases: the ex ante phase and the ex poste phase

140

Distribution channel management (contd.)


The ex ante phase involves all the activities that are associated with the design and establishment of the distribution channel. These activities actually take place before the distribution channel actually starts functioning.
The exposte phase involves managing the day to day activities of the channel wherein the behavior of the individual channel members are coordinated
141

Channel Management tasks


Design of the channel structure Ex ante

Phase
Establishing the channel

Distribution Channel Strategy Channel Objective Activity Finalization Organizing the activities Developing Policy Guidelines

Motivating Channel Members

Ex Poste Phase Resolving Conflicts among channel members

142

Chapter 14
Designing customer-oriented marketing channels

143

Channel Design

The channel design is normally meant to give a clear idea about: The number of channel entities in the channel network, The way in which they are linked, The roles and responsibilities of the entities in the network The rewards for participating in the activities and also Clear cut guidelines for the major activities to be performed during the normal functioning of the channel.
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What are the service outputs


Waiting time Breaking the bulk Spatial convenience

Assortment

145

Distribution channel design


To consume a product Channels

Service outputs have to be delivered

Participates in channel flows

Activities have to be performed

Thus performs activities

146

Example of a service output delivered template


S.No Service dimension Service output delivered .
1. 2. Bulk-Breaking Spatial convenience Units are delivered in ones There is at least one outlet for almost every 3 km radius excluding of course thinly populated areas Not more than 2 days for any model Other consumer goods items including that of other competitors are available at all the outlets where the products are otherwise Available Available Free for first two years, but available on payment afterwards. Also available at every city from where the product was bought. Available
147

3. 4.

Waiting time Assortment

5. 6.

Installation support After sales support

7.

Consumer financing

Channel flows and contribution to service outputs


Flow
Physical Possession Ownership Promotion Negotiation Risk taking Financing

Direct contribution

Indirect contribution

Other contribution

Spatial Assortment convenience, bulk breaking, waiting time Spatial convenience Spatial convenience Spatial Assortment convenience, bulk breaking Waiting time, bulk breaking, spatial convenience Spatial Assortment convenience, waiting time, bulk breaking Bulk breaking, spatial convenience, waiting time

Is a service output in itself

Ordering

148

Channel design effort decisions


The service output levels The flows or activities that are associated with the achievement of the service output levels The type of entity who would be entrusted with the performance of each of these flows
149

Parameters for comparing channel designs


Efficiency Effectiveness Equity Scalability Flexibility

150

The channel establishment plan


The main purpose of the channel to be set-up

(contd.)

The profile of the customers who are the target market for the channel The needs and requirements of the target market with regard to the identified service outputs provided by the proposed/ existing channel: Analysis of the operations of the existing channels that deal in similar product/service lines

Detailed activity chart for achieving the service output


objectives
151

Plan..

Contd.

Details about the various channel constituents who will be performing these tasks

The cost of performing the activities


The designated roles and responsibilities of the channel constituents The proposed remuneration for performing these roles and responsibilities Standards for measuring the performance Procedures for reporting and information sharing Monitoring mechanisms Criteria for appointing the channel members
152

Chapter 15

Customer-oriented logistics management

153

Logistics strategy
Cost reduction Capital reduction Service improvement

154

Logistics Planning
Inventory Management
Inventory levels Deployment of inventories Control methods

Transportation decisions
Modes of transport Carrier routing/scheduling Shipment size /consolidation Customer Service goals

Location decisions
Number, size and location of facilities Assignments of stocking points to sourcing points Assignment of demand to stocking points
155

Generic types of outbound logistics strategies


Direct shipment Warehousing Cross-docking

156

Functions of warehousing operations


Movement Storage Information transfer
Stock keeping locations Inbound and outbound shipments Facility space utilization Order fulfillment data Receiving Transferring Order picking/selection Shipping

157

Relationship between logistics, cost, and number of warehouses


Total cost

Total cost

Inventory cost
Transportation cost Warehousing cost

Number of warehouses
158

Why Inventories?
To improve customer service To smoothen the operations of the logistics system To reduces costs Inventory procurement costs Inventory carrying costs Stock out costs Cost associated with inventory

159

Components of inventory carrying cost


Capital cost Inventory Investments

Inventory carrying cost

Inventory service costs


Storage space costs Inventory carrying cost

Insurance and Taxes


Warehouse rent, maintenance charges Obsolescence Damage& Pilferage Shrinkage Relocation costs
160

Echelon inventory
Stockist echelon lead time

Supplier

Stockist echelon Inventory

Stockist

Retailer

Retailer

Retailer

Retailer

Retailer

161

Factors affecting transportation cost


Product related factors
The density of the product Stow ability Difficult in handling Liability Intramode competition Location of markets Balance or imbalance of in freight traffic in and out of the market Seasonability of the product movements

Market related factors

162

Chapter 16

Managing Channel Member Behaviour

163

Channel relationships
Perceptions of organisational power Dependence Control Trust Commitment Co-operation
164

Discrete relational exchange continuum

Arms length relationship

Relational exchange relationship

165

Channel control

Distributors profit earned

Tolerance Function

PayOff Function

Zone of acceptance

Supplier authority

166

Role of persuasion, authority, and coercion in channel control


Channel members profit A Tolerance function B

Pay off function

Coercion

persuasion

Authority

control

167

Components of channel offering


Manufacturer sales force incentives

Promotional Responsiveness support systems Financial returns Quality products Technical Reliable delivery assistanc Competitive price e National reputation Company

Training

policies

Market resear ch

Distributor sales force incentives

Incentive programme

Distributor firm incentives

Channel core elements

Capability building programme 168 s

Influenc e Strategy group

Types of Influence strategy

Explanation

Indirect Information influenc exchange e Information control strategi Modeling es


Direct
Unmediat ed Strategies

Where information on general business issues and the channel program is merely exchanged with channel member personnel. In this type of strategy the consequences of the acceptance or rejection of the channel programme or its implementation are stressed, but these consequences are based (contd.) on a response from the market environment, 169 not on the mediation of the

Recommendation Warning Positive normative Negative normative.

Influence strategy types

Reward and Economic reward Punishment Non-economic reward Economic punishment Strategies
Non-economic punishment Direct request

In this type of strategy rewards and punishments are directly given to channel members
This strategy involves making a direct request to the channel member where the Principal mainly communicates desires or wishes concerning the channel members acceptance of the channel program. In this type of strategy specific action is requested; consequences of acceptance or rejection are stressed and are based on the mediation of the channel principal.
170

Direct unweighted strategy

Direct Mediated strategies

Personal plea Promise Threat and Legalistic reference.

(contd.)

Influence strategy types

Influence situations in channel relationship


Attitude towards the channel progranmme Positive Neutral Negative

+ ve
Behaviour Reinforcement process Behavioural reinforcement Inducement process Behavioural change Moderate rationalization Attitude change Moderate confrontation Behavioural and attitudinal change Radical rationalization Attitude change Radical confrontation Behavioural and attitudinal change

towards the channel program me

- ve

171

Stages in channel conflict


Attitudinal sources of conflict Cognitive/ Affective conflict Manifest conflict Conflict outcomes

Structural sources of conflict

Conflict resolution

CAUSES OF CONFLICTS Attitudinal Causes Structural causes


172

Conflict management methods at different stages of conflict


Institutional approaches
Latent conflict Joint membership of associations Exchange of executives Cooptation Dealer councils Third party mechanisms Mediation arbitration

Felt conflict

Manifest conflict

Negotiation
173

Negotiation strategies
HIGH
Accommodative Collaborative/problem solving

Concern for the others interest


Avoidance LOW

Compromise

LOW

Competitive /aggressive Concern for own interest HIGH


174

Chapter 17

Retail Management

175

Retail marketing mix


Merchandise characteristic Customer service characteristic Trading format Customer communication

176

Retail marketing mix

(contd.)

How merchandising functions affects profitability?


(i) the merchandise in the store affect the volume of sales as it is primarily the merchandise that attracts customers (ii) since profitability is based on the turnover rate of the inventory, the choice of merchandise and the quantity of merchandise of each category stocked affects the overall profitability of the establishment

177

Factors affecting choice of retail strategy


Companys strategic objectives in terms of the level of profitability desired Space availability Preferences of target customers Relationships with manufacturers Availability of trained salespeople etc.

178

Availability of stock and stock holding cost


Stock holding cost
+20%

Percentage of availability

80%

90% 100%
179

Financial method of merchandising


Cost method
Retail method

180

Merchandise planning process


Develop a sales plan
Plan reductions Develop a stock plan Plan merchandise needs

Calculated planned Purchase


Plan mark ups based on profitability targets
181

Customer services
Product services Service products Support activities

182

Customer performance measuring techniques


Frequency or browsing visits Frequency of purchase visits

Average transaction per visit


Items purchased

Range purchased
Customer service facilities used
183

Purchase process for service requirement identification


Purchase process
Pre-purchase phase Service requirements Search Comparison Product related

Augmentation of the product Purchase phase Transaction related

Delivery Installation
Post purchase phase Use extension Repeat visits
184

Attitude towards trading format and store Shopping environment Attitudes


Task Oriented Pleasure Oriented Pre-purchase Stage During Purchase Convenient Locations Exclusive Store Merchandise Ample Parking Wide Choice Close to Other Task Oriented Prestigious Image Stores Relevant Merchandise Selection High Availability Competitive Pricing Rapid Cash Handling Ambience and Excitement Visual Merchandising In-store Facilities Product Services Centers

Post-purchase Stage

Product Displays Customer Advice Areas

Theme Displays Customer Advice Areas


185

Chapter 18 Managing the International


Channels of Distribution

186

Factors affecting international trade


Differences in customer expectations across countries Differences in channel structure and trade practices Differences in governmental policies and regulations Differences in the quality of physical infrastructure

187

Market entry strategy


Indirect exporting

C O N T R O L

Direct exporting
Licensing Franchising Contract manufacturing Strategic alliance

R I S K

Joint venture
Wholly owned subsidiary
188

Success factors in manf. overseas distributor relationships


Distribution inhibitors
Separate ownership

Outcomes
Divided loyalties Seller buyer atmosphere Unclear future intentions Communication blocks Negative attitudes Problems in physical distribution Vertical trading restrictions Dismissal difficulties

Remedies
Offering good incentives, helpful support schemes, frank discussions, and high levels of interactions Making judicious ways of two way visits, establishing a well managed communication programme Full compliance with law,drafting a strong distributor 189 agent.

Geographic, economic, and cultural gaps

Differences in the legal and regulatory structures

International logistics management


International distribution system International suppliers Offshore manufacturing Fully integrated global supply chain

190

Export procedure
1

Exporter
4 5 5

Importer
2

Bank in exporters Importers bank country 3

Import warehouse
9

Manufacturing
8 6

Customs
9

Freight forwarder

Transportation and Documentation formalities secured

Ship Contd.

Customs broker
191

Contd.

Stat e
1

Process
The Sale
Importer

makes enquiry from potential supplier Exporter sends catalogue and price list Importer requests samples Exporter sends Proforma invoice Importer sends purchase order

Importer arranges bank financing.

3
4 5 6 7 8 9

Letter of credit send by importers bank


Exporters bank notifies that the LOC has been received Exporter produces or acquires goods Exporter arranges transformation and documentation and space reserved on ship or aircraft Exporter ships goods to importer Exporter presents documents to bank for payment Importer has goods cleared through customs and delivered to the ware house

192

International logistics intermediaries


Freight forwarder
a) To forward an export shipment from the point of origin to the ultimate destination and b) To deal with transport carriers to get space for the shipment.

Customs broker

193

Exporting documents
Letter of credit Bill of lading Commercial invoice Commercial invoice Consular invoice Certificate of origin

194

Thank you

195