Module - Sales Force Organization
Three Principles of Sales Force Organization:
Management Control and Empowerment
- Span of controlis the number of subordinates who are supervised by each individual manager. Typically this involves assigning 1-10 people to each manager.
- Unity of commandmeans that each person should report to only one boss.
- Hierarchy of authority, which shows a clear, unbroken chain of command which should link every person in an organization with someone a level higher. For example linking each sales associate with a direct manager in which, the sales associate goes to for questions or guidance.
- Stability and Continuitysuggests that activities are assigned by position in the organization without regard to talents and preferences of current employees.
- Coordination and Integrationis the integration of activities that deal with customer needs with activities of other departments in the organization, and coordinated with the tasks performed by all salespeople.
1. Most appropriate when salespeople are inexperienced.
2. New sales people benefit greatly from one-on-one coaching.
3. There is tighter control over sales force activity.
1. Tends to complicate the communication process.
2. Isolates upper management from the marketplace, customers and front line sales representatives.
3. Increases administrative operating costs.
1. Fewer levels of management and lower administrative costs.
2. Sales managers delegate more responsibility and authority to the lower levels.
3. Less bureaucracy allows companies the ability to adopt to change in the market.
1. The need for recruiting people who are more suited to work independently and take responsibility.
2. Training must include additional skills, knowledge and professional development.
3. Fewer promotion opportunities for sales people within an organization.
Centralization vs. Decentralization
-Centralized means that operations, recruiting, selecting, training, compensating, motivating, and evaluating are controlled by a central headquarters.
-Decentralized means field sales managers are empowered, enabled and held responsibility for performing these activities.
The trend in todays market is to favor decentralized organizations. Advances in technology make decentralization easier. For an organization to be successful with decentralization the sales force needs to work smoothly with other parts of the organization, such as Marketing, Research and Development, Production, and Financing.
Geographic- this is the most common and least complicated specialization. This means organizing the sales force according to geographic territories with a salesperson assigned to sell all products to all customers within their area.
Product- organizing the sales force around defined product lines. This is commonly used when a company has a vast line of products. An example is 3M, which sells everything from masking tape to medical supplies. Often the salesperson must possess substantial background and knowledge of the product in order to facilitate customer relations.
Customer- assigning sales people by customer type (often by industry) instead of geographic territories. Each sales person sells an entire product line to a select group of buyers. This makes the organizational structure more market driven.
Functional- the sales organization focuses on the jobs or functions performed by customer contact people. This means having certain individuals generating initial sales and others servicing the accounts.
There is no best way to organize the sales force. Organizations need to adapt to the needs of their customers, utilizing the specialization structure that maximizes customer value.
Customer contacts are made using telecommunications technology for personal selling without direct, face-to-face contact. This method is increasing in popularity as a cost-effective way to serve small and medium sized customers. Also, telemarketing is often cost effective for prospecting and qualifying leads, customer retention, advertising, and sales promotions. A few of the disadvantages include interrupting the customer, motivating the telephone sales representative, retention of employees, and finding a sufficient number of qualified representatives.
Telemarketing is usually used when the product must be one that is easily understood by the customer or for which the customer has substantial knowledge. Ultimately, the success of telemarketing is the level of face-to-face contact the customer needs. If there is little or no value in face-to-face contact, telemarketing may add value for the customer while cutting costs for the organization.
Independent Sales Agents (manufacturer representative)
These sales people are not employees but are independent businesses given exclusive contracts to perform the selling function within specified geographic areas. The trade-off between independent agents and a company sales force is cost versus control. The company sales force is completely under management's control and selling only the company's products. Manufacturer's representatives are not employees and thus operate free of direct corporate control and they sell complementary and/or competitor's products. In contrast, the company sales force has greater fixed costs, while independent sales agents are compensated with commission. In the later case, there is very little fixed cost, instead costs are only incurred when a sale is completed. One thing to consider with independent sales agents is economics.
When a company is entering a new market, sales agents are often a good means for achieving initial success at minimal risk. Manufacturer representatives have already established a network of contacts and relationships with customers in their geographic area. The company must weigh the pros and cons to see if utilizing independent agents is beneficial to their organization.
Determining the Number of Sales People
Affordability Approach- the size of the sales force is a compromise between the number of people needed to call on existing and potential customers with what the firm can afford. This approach has the advantage of costs being consistent with revenues. The primary disadvantages of this approach are that it does not consider the market potential or customer needs.
Workload Approach- the size of the sales force is determined by the frequency and length of calls needed to sell to existing and potential customers. The biggest drawback of this approach is the failure to consider the costs and profits associated with different levels of customer service.
Incremental Approach- this approach states that a new salesperson should be added until the gross profit on new business is equal to the cost of deploying another person. Sales grow because of better service, but the total number of potential accounts does not change. This approach works on the axiom that there is a limit at which selling expenses grow faster than revenues.
Dalrymple, J. Douglas, Cron, L. William, Sales Management: Concepts and Cases, 5th
Edition, John Wiley and Sons, New York, 1995.
Hite, E. Robert, Managing Salespeople: A Relationship Approach, South Western
College Publishing, Cincinnati, Ohio, 1998.