Managing for Value creation

Session 8

Putting it All Together: Execution

The Role of Sales in Creating Value

Lecture Schedule

Topics for today

Putting it together topics for today..

The role of sales in creating value
Sales is focused on connecting to customers. how do customers
perceive your offering?
Winning customer orders
Understanding the customer:
How do (business) customers purchase?

The role of sales in creating value

The (changing) role of sales in the

organisation

Weitz & Bradford, JAMS, 1999

What is the role of sales?

Sales functions as
a bridge
Connecting the
sales team,
marketing and the
customer.
This results in
interfaces where
information is
shared (or gets
lost)

Interface
marketing
- sales

Marketing & Sales: Alignment

The Marketing-sales interface

Homburg, Christian, Ove Jensen, and Harley Krohmer (2008), "Configurations of marketing and
sales: a taxonomy," Journal of Marketing, 72 (2), 133-54.

Different thought worlds of Marketing and

sales: What differences make a diference?

Homburg, Christian and Ove Jensen (2007), "The thought worlds of marketing and sales: which differences make a
difference?," Journal of Marketing, 71 (3), 124-42.

Different thought worlds of Marketing and

sales: What differences make a diference?

Cooperation worsens as thought worlds differ - market performance improves with alignment

Different thought worlds of Marketing and

sales: What differences make a diference?

Conclusions from the study: Thought world

differences are useful:
Provided one side (sales or marketing) plays a customeradvocate role and the other side a product-advocate role.
Provided one side plays the advocate of short-term
considerations while the other plays the advocate of longterm considerations.

Thought world differences lead to worse outcomes

when product knowledge and interpersonal skills differ.

Motivating the sales force

Motivation is often equated to providing incentives

but evidence suggests this is not a tremendous
motivator in itself (e.g. Gilliland toward a business-tobusiness channel incentives classification scheme,
IMM 2003)

The interface role of sales (2)

Vrooms expectancy theory

Motivating salespeople:
Vrooms theory behavior
results from conscious
choices among alternatives
whose purpose it is to
maximize pleasure and to
minimize pain.
Vroom realized that an
employee's performance is
based on individual factors
such as personality, skills,
knowledge, experience and
abilities.

Managing the own salesforce

Directing
Salespeople

Motivating
Salespeople

Identify Customer Targets

& Set Norms

Organizational Climate

Develop Prospect Targets

Positive Incentives

Use Sales Time Efficiently

Annual Call Schedule
Time-and-Duty Analysis
Sales Force Automation

Sales Quotas
Monetary
Re/Awards
Promotion

Directing salesforces

Targeted offerings
Need to understand segmentation base

Sales force deployment

Need to understand allocation mechanisms

Optimized automation, tools, procedures

Need to understand adoption drivers

Performance management
Need to understand metrics

Performance of sales managers

Typically measured on output dimensions such as

sales made, win rate etc.
For products that are harder to sell or where
relationships matter, other criteria are used in
addition:

Attempts
Contacts
Conversations
Appointments Scheduled
New Meetings
Proposals
Conversions

Effective sales people need to

..categorize customers and adapt to it

..use market research information
..organize (unitize) information around sales situations
..learn from excellent salespeoples experiences
..find reward in the work itself (rather than in extrinsic rewards)
..focus on the content of their work (rather than on consequences)
..learn from diagnostic feedback (cause rather than outcome)
..learn from their own mistakes and success (self-attributed)
..self-manage
..benefit from a climate of mutual commitment
What dimensions do you see in the above?
Sujan et al. (1988)

The independent Salesforce

Independent salesforces are common

Independent Sales Forces

The independent sales organisation:

How to motivate these parties to carry your

product and not competitive products? >Issue of motivation

recent changes with WebJet and TigerAir

Firms provide incentive systems

What incentives are provided?

Pledges, sales support, and others

Why use multiple incentives?

Incentives are used to

reduce different
concerns
Flexibility vs. stability
Internal vs. external
focus

Incentives address concerns:

Winning customer orders

What if we take the perspective of the

customer?

Understanding Customers Order-Winning

Criteria
All potential
Customers

Order-Qualifying
Screen

Order-Winning
Screen
Qualified
Competitors
Successful
Competitor

Value Creation & Delivery

Understanding customers order-winning criteria

Value creation requires the ability to:
Distinguish between order-qualifying criteria and orderwinning criteria in each segment
Deliver competitiveness on order-qualifying criteria,
together with significant leadership on selected orderwinning criteria

Understanding Customers
Order-Winning Criteria

The Order-Winning tests

A customer-value dimension will be order-winning
only if the customer:
Cares about the dimension
Is able to judge performance
Believes there are large differences between competitors
Believes the differences will last

Understanding Customers Order-Winning

Criteria:International Students

Interest
Employment Outcomes
Level
Affordability
Influenced by family,
peers and social
environment

Qualified
Competitors
* Appears to be little cannibalisation
between countries

Order-Qualifying Screen
Country First*
Security
International recognition
Home country recognition
Quality of educators
Destination employment
opportunities
Visa requirements (study
and work)
Migration opportunities
Affordability
Family connections

choosing a university

Understanding Customers Order-Winning

Criteria: International Students

Qualified
Competitors
Institution
Rankings & reputation
International recognition
(especially by employers)
Course structure
Fees
Location
Links to employers
Alumni

Benefits sought
Hands on experience
Acquisition of skills to
enhance employment in
home country
Link to globalisation
Enriching personal and
professional experience
Stepping stone to
migration

Successful
Competitor

Gate-keepers, Influencers, and Decision

Makers

What is the Decision Making Unit? (DMU)

User (may
initiate
the purchase process
and/or develop
product
specifications

Initiator
(begin the purchase
Process)

Purchaser
(choose suppliers
and negotiate purchase
terms often reducing
the actual purchase
to a clerical task)

Influencer
(supply information
and advice. Outsiders
such as consultants
sometimes perform
the role.)

Purchasing
Decision
Decider
(have the authority
to approve
the purchase.)

Gatekeepers control the flow of information to the DMU

Whos Who?

Which buying center participant is most likely to make each of the

following statements?
a buyer, decider, gatekeeper, influencer, or user?
This adhesive better be good, because I have to put this
product together.
I specified this adhesive on another job, and it worked for
them.
Without an appointment, no sales rep gets in to see Mr.
Johnson.
I dont see any reason why we cant use this adhesive on the
next job.
Okay, it is a deal well buy it.
Ill place the order first thing tomorrow.

Understanding the customer:

how do (business) customers purchase?

Purchasing Process

Define what to purchase (1)!

Request for Quotations (2)!

Select Best Supplier (3)!

Purchase Order (4)!

Receive & Inspect Goods (5)!

Define what to purchase

Based on the internal customer what do our final

customers need derived demand
Straight rebuy Modified rebuy

New task

Routine task

New task

Low risk

High risk

Define what to purchase

Agree on either/or:
Functional specification: Describes the functionality
which the product must have for the user
Potential suppliers are challenged to give advice
using their expertise and experience
Stimulates innovation
Creates reference to evaluate suppliers against
Detailed technical specification
Describes the technical properties and
characteristics of the product as well as the
activities to be performed by the supplier in detail

Request for quotations

Informal or formal way of asking for offers

Types
A private exchange (private industrial networks)
PHILIPS e-DIAMOND and
VWGroupSupply.com
Net marketplaces (e-hubs)
Exostar or ChemConnect.com
Exchanges are independent third party electronic
marketplaces that connect thousands of
suppliers and buyers for spot purchasing
FoodTrader.com or Alibaba.com

Request for proposals (RFP)

Select the best supplier

Selection removes friction from the exchange/

enhance outcomes.
Critical to remove friction through various tools:
Vendor evaluation
Sampling
Quality assurance: ISO etc.
Vendor rating
Sustainability/Ethics
Selection processes also manage / reduce risk

Select the best supplier

Critical for end outcomes:

von Hippel (1988) finds that in certain industries
two-thirds of innovations can be traced back to
ideas and suggestions made by other (supplying)
firms.
In the automotive industry, evidence suggests that
the supplier involvement in developing new cars
can be as high as 30% (Clark and Fujimoto)

Select the best supplier: Standards

Select the best supplier: Performance Monitoring

Developing a purchasing strategy

Dr. Peter Kraljic: key to developing a

purchasing strategy is matching the
correct purchase strategy to the current situation.
A firms supply strategy should depend on two dimensions:
profit impact
Volume purchased/ percentage of total purchased cost/
impact on product quality or business growth
supply risk
Availability/number of suppliers/competitive demand/
make-or-buy opportunities/ storage risks/ substitution
opportunities

Classification of Required Items

Supply risk

High

Low

Bottleneck items

Strategic items

Suppliers technology critical

Difficult to substitute
Unique requirements

Unique specifications
Suppliers technology critical
Difficult to substitute

Non-critical items

Leverage items

Many suppliers available

Easy-to-find substitute
products

Large volume purchases

Can find substitutes
Many suppliers available

Low

Profit impact

High

How to match required products

to purchasing strategies?

Consider the item and sort them

in terms of profit impact and
supply risk.
Office chairs?
Advertising?
Database systems?

Assess
your
strength
relative to
the
market

Low

Importance of purchasing

High

Kraljics Matrix of Purchasing Sophistication

Materials management
Focus on
*Leverage items
*Cost/price and materials flow
*Multiple (local) suppliers
*1-2 years time horizon
*commodities/specialized

Supply management
Focus on
*Strategic items
*Long-term availability (not only cost)
*Established global suppliers
*Long time horizon
*Scarce & high-value materials

Supply abundant
Decentralized authority

Natural scarcity
Centralized authority

Purchasing management
Focus on
*Noncritical items
*Functional efficiency
*Local suppliers
*Short time horizon
*Mostly commodities

Sourcing management
Focus on
*Bottleneck items
*Cost management and reliable sourcing
*Global/high tech suppliers
*Specified materials

Abundant supply
Decentralized authority
Low

Production scarcity
Decentralized/centralized control

Complexity of supply market

High

Actions

Kraljics learnings

Example

Imagine you need to source office supplies such as

pencils, printers etc.
What can office supply companies do (using the
ideas of Kraljic) to win the order?

Returning to sales and execution

The customer mindset

Test Your Customer Mindset

1

I must understand the needs of my company's customers

It is critical to provide value to my company's customers
I am primarily interested in satisfying my company's
customers
I must understand who buys my company's products/
services
I can perform my job better if I understand the needs of
my company's customer
Understanding my company's customers will help me do
my job better

Strongly
Agree

Strongly
Disagree

External Customer Mindset

Want to Think Like a Customer?

Avoid
Wasting a customers time
Lacking empowerment to handle problems now
Not knowing a customers business
Bringing problems, not solutions

Do try to create value:

Value - bundle of
benefits a customer
derives from a
purchase
Give-get ratio
Value creation adding value for a
customer beyond an
isolated transaction

1-59

Do match customer expectations/needs to

what you offer.

Transactional
Buyers mainly interested in price and convenience
Suppliers bring no additional benefits
Suppliers reduce resources allocated to selling

Relationship
Consultative
Buyers willing to pay for new value and additional benefits

Enterprise
Strategically important customers demand extraordinary
value creation
Requires cross-functional teams to execute

Enterprise Example:
Walmarts relationship & Proctor and Gamble

The relationship is worth US $12 billion.

Involves:
Joint planning for the long (5 year) term to set shared sales
goals.
P&G uses integrated technology to provide Wal-Mart with
just-in-time delivery of products.
Involves category information/market research done by P&G
to benefit Walmart.
Representatives from many functional areas within P&G are
required to make this enterprise selling effort successful
High pressure to reduce prices (requiring a high degree of
innovation)

Do match customer expectations/needs to

what you offer.

Time investment in each stage of the sale

Developing Understanding
of Buyers Needs

Value-Added Selling

Presenting a
solution

Closing the Sale

Traditional Selling
Time Invested

Biggest Challenge?
Shift to Value-Added Selling

Diculties Salespeople Have in the Marketplace

Moving to solution-type sell

69%

Selling value

67%

Inexperience

63%

Negotiating

58%

Prospecting

55%

Closing

55%

Unable to get to decision-maker

51%

Johnston and Marshall 2013

Lecture Schedule

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