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( Please note that all our server links, are on our computer. You need to press the McGraw-Hill links to have access to the same material.)
Rosann Spiro, Indiana University--Bloomington
William J. Stanton, University of Colorado--Boulder
Greg A. Rich, Bowling Green State University--Bowling Green
Management of a Sales Force is the #1 selling text in this market. This book covers the concepts and applies the theories associated with managing a sales force. This text is praised for its practical, applied, student friendly approach.
Chapter 1: The Field of Sales Force Management
Chapter 2: Strategic Sales Force Management
Chapter 3: Personal Selling Process
Chapter 4: Sales Force Organization
Chapter 5: Profiling and Recruiting Salespeople
Chapter 6: Selecting and Hiring Applicants
Chapter 7: Developing, Delivering, and Reinforcing a Sales Training Program
Chapter 8: Motivating a Sales Force
Chapter 9: Sales Force Compensation
Chapter 10: Sales Force Expenses and Transportation
Chapter 11: Leadership of a Sales Force
Chapter 12: Estimating Market Potential and Forecasting Sales
Chapter 13: Sales Territories
Chapter 14: Analysis of Sales Volume
Chapter 15: Marketing Cost and Profitability Analysis
Chapter 16: Evaluating a Salesperson’s Performance
Chapter 17: Ethical and Legal Responsibilities of Sales Managers
Appendix A: Integrative Cases
Appendix B: Careers in Sales Management
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Sample Chapter (198.0K)
Our Server Chapter (198.0K)
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ROSANN L. SPIRO is a Professor of Marketing at the Kelley School of Business, Indiana University in Bloomington, Indiana, where she teaches Sales Management, Personal Selling, Business-to-Business Marketing, International Marketing, and Managerial Research in Marketing. After receiving her undergraduate degree in Economics and an M.B.A. in Marketing from Indiana, she joined the Shell Oil Company as a Senior Analyst/Statistician in the Economics and Planning Department. She then moved on to the more exciting area of sales: as the first woman to become a Shell Oil sales representative, she sold a wide variety of products to major industrial accounts.
In 1973, when the national oil crisis caused a shortage of products to sell, Rosann returned to school, earning a Ph.D. degree in Marketing from the University of Georgia. She then taught at the University of Tennessee and subsequently moved to Indiana University. She also spent a year at the University of Arhus in Denmark as a Visiting Professor of Marketing and a semester as a Visiting Professor at I.E.S.E. in Barcelona. She has lectured at universities and institutes in western, central, and Eastern Europe as well as South Africa. Rosann is a well-known author whose work in marketing has appeared in numerous national and international publications. She won the Outstanding Article of the Year in the Journal of Personal Selling & Sales Management in 1996, 1986, and 1981. She is on the editorial review boards of the Journal of Marketing, the Journal of Personal Selling & Sales Management, and Marketing Management.
Currently Rosann is the Chairperson-Elect of the Sales SIG of the American Marketing Association. She has also served as President of the World Marketing Association and as Chairperson of the Board of the American Marketing Association as well as Vice President of the Education Division and as a member of the Advisory Board for the Business Marketing Division of AMA. Currently she serves on an advisory board to the U.S. Census Bureau. She is a frequent consultant to businesses and participates in national and international management development programs.
Outside of work Rosann enjoys her family, jogging, tennis, skiing, sailing, and reading.
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WILLIAM J. STANTON is Professor Emeritus of Marketing at the University of Colorado in Boulder. He earned his M.B.A. and Ph.D. degrees at Northwestern University. For 35 years, Bill worked extensively with both undergraduate and graduate students at Colorado, developing teaching/learning materials and curricular programs.
As an extension of his teaching interests, he has worked in business and has taught in management development programs for sales and marketing executives. For many years he taught in management development programs sponsored by Sales and Marketing Executives-International, including the Field Sales Management Institute (for middle-level sales executives) and the Graduate School of Sales and Marketing Management (for top-level sales and marketing executives).
Bill also designed, coordinated, and taught in the first management development programs sponsored by Advanced Management Research for sales executives. He has served as a consultant for business organizations and has engaged in research projects for the federal government.
Bill has lectured at universities in Europe, Asia, Mexico, and New Zealand and has written various journal articles and monographs. One of his other books, a widely used principles of marketing text, has been translated into Spanish, Portuguese, Italian, and Indonesian; and separate editions have been adapted (with co-authors) especially for students in Canada, Australia, and Italy.
In a survey of marketing educators, Bill Stanton was voted one of the top seven leaders in marketing thought. Recently, he was awarded the AMA Sales SIG Lifetime Achievement Award. He is listed in Who's Who in America and Who's Who in the World. In his "spare"time, Bill thoroughly enjoys jogging, downhill skiing, gardening, and traveling.
GREGORY A. RICH is an Associate Professor of Marketing in the College of Business Administration at Bowling Green State University in Ohio. He earned his M.B.A. and Ph.D. degrees at Indiana University.
Greg has a passion for teaching undergraduate students - especially in the area of selling and sales management. He is the faculty advisor to the BGSU Sales and Marketing Club; and has served as coach and chaperone to his students at the National Collegiate Sales Competition at Baylor University every year since its inception in 1999. He has a special interest on the impact of the Internet and computer-related technology on the sales force. He has published articles in this area, and was one of the first academics to develop and teach a course on Internet marketing.
In his primary research focus, Greg applies the principles of leadership theory to the field of sales management. His publication record includes articles in a number of prestigious outlets, and he is a regular presenter at national marketing conferences. He is on the editorial review board of the Journal of Personal Selling & Sales Management.
Greg also serves as a frequent consultant to sales organizations. He offers workshops that provide sales managers with specific feedback on how they can be more effective leaders of their sales force. Before entering academe, Greg was employed in the video production industry as a copywriter/producer of television commercials and other projects, including sales training videos. He worked closely with clients from a wide variety of industries. Current leisure activities include running marathons, playing guitar, coaching little league baseball and watching ice hockey.
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This Book-Geared for the Twenty-First Century
The new edition of Management of a Sales Force is coming out in the early years of a new century. The market environment in the new century is dramatically different. The age and ethnic mixes of the population of the United States are changing considerably; the population is getting older and less white. Many Americans are part of a minority group. People's values are changing as we show more concern for our social and physical environments and our overall quality of life. Along with these changes, we now expect that leaders in government, business, and other institutions adhere to higher standards of ethical and social responsibility than in the past. In this century, most businesses will be internationally oriented, buying from and/or selling to the global markets. Today the U.S. market has reached the saturation point for many consumer and industrial products; but new markets such as Eastern Europe and China have opened up. European, Asian, and U.S. trade agreements have made it easier for companies to sell products and services in Europe, Asia, Central and South America, and Canada. Growth for many American companies in the twenty-first century will come from the Asian, European, and South and Central American markets. At the same time, competition in the United States from foreign competitors has greatly intensified.
New developments in communication and information technology are changing our everyday lives and our business practices. Most salespeople now use some type of computer technology to assist them in serving their customers, and most sales managers use computer technology to assist them in managing their salespeople. Customers too are using new technologies, such as the Internet, to assist them in gathering product information and in making purchase decisions. Today's customers demand higher quality and greater levels of service.
As a result of these economic and competit ive pressures and the social and cultural changes, companies are being forced to become more market oriented-more responsive to the customer. The role of the sales force is expanding greatly. The salesperson of the twenty-first century is a professional who is as much a marketing consultant as a salesperson. These new salespeople are engaged in consultative relationships with their customers. They are expected to solve customer problems, not just sell products. Their focus is on building long-term relationships with their customers. In many cases, companies respond to their customers' needs by using selling teams, rather than a single salesperson.
As the nature of personal selling changes, so does the role of the sales manager. Today's sales managers are viewed as team leaders rather than bosses. They empower and collaborate with their salespeople rather than control and dominate them. Managers in this century are being asked to manage multiple sales channels, such as telemarketing and electronic marketing as well as field salespeople. They are also assuming a greater responsibility for directing and coordinating the marketing efforts of their firms.
Your career success will depend greatly on your ability to adapt to the environmental challenges and changes that will occur throughout this decade. The contents of this book can be valuable to you because you will use the knowledge contained in your sales course fairly immediately. Within a very few years many of you may well be some type of sales force manager, perhaps at a district level. Even as salespeople, you may be called upon to use material covered in this book. The year following your graduation, you may come back to your alma mater as a member of your firm's employee recruiting team. Or you may be called upon for suggestions regarding a proposed compensation, expense, or quota plan. We wrote this book to help make the transition from college to a professional selling career easier for you.
Chapter 1: The Field of Sales Force Management
Chapter 2: Strategic Sales Force Management
Chapter 3: The Personal Selling Process
Chapter 4: Sales Force Organization
Chapter 5: Profiling and Recruiting Salespeople
Chapter 6: Selecting and Hiring Salespeople
Chapter 7: Developing, Delivering and Reinforcing a Sales Training Program
Chapter 8: Motivating a Sales Force
Chapter 9: Sales Force Compensation
Chapter 10: Sales Force Expenses and Transportation
Chapter 11: Leadership of a Sales Force
Chapter 12: Forecasting Sales and Developing Budgets
Chapter 13: Sales Territories
Chapter 14: Analysis of Sales Volume
Chapter 15: Marketing Cost and Profitability Analysis
Chapter 16: Evaluating a Salesperson's Performance
Chapter 17: Ethical and Legal Responsibilities of Sales Managers
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This is a book about managing a sales force-that is, managing the personal-selling component of an organization's marketing program. Specifically, this book deals with the management of an outside sales force where the salespeople go to the customer. Outside selling contrasts with across-the-counter selling, where the customers come to the salespeople. By any measure-people employed, dollars spent, or sales generated-personal selling is by far the most important element in a company's promotional mix.
In the face of intense competition, many companies today practice relationship marketing or relationship selling, which is very different from the traditional transaction-oriented selling that focused on the one-time sale of the product. In contrast, relationship selling focuses on developing trust in a few selected accounts over an extended period.
There are a wide variety of sales jobs in which salespeople work for a wide variety of companies, selling many different products, and serving a wide variety of customers. The sales job is also different in a number of ways from other jobs. Further, a new type of sales representative is emerging, one who acts as a marketing consultant for the customer and for his or her own firm.
The role of the sales manager is also expanding. Today, the most successful sales managers are seen as team leaders rather than bosses. They provide support and resources, and must often mange multiple channels of distribution.
Sales managers are administrators, and administration (management) is a distinct skill. Sales talent alone does not make a good manager, but management can be learned. There are several levels of sales management positions, and sales managers' jobs also differ from other management positions.
The importance of personal selling and sales management may be viewed from the perspective of our total economy; individual organizations; or you, the student. To manage a sales force effectively in the 21st century, sales executives must develop greater expertise in the following areas: (1) customer relationship management (CRM), (2) sales force diversity, (3) electronic communication systems and computer-based technology, (4) selling teams, (5) complex channels of distribution, (6) an international perspective, and (7) ethical behavior and social responsibility.
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Modern sales managers understand that they are but one link in the total marketing strategy for the firm. Moreover, they understand the place of the firm's marketing strategy within the company's total strategic plan.
In addition, both managers and reps should understand the external environmental forces that affect their operations. Specifically, they must monitor and respond to any changes in the demographics, economic conditions, sociocultural-factors, political-legal factors, technology, and competition associated with their market. They must also understand their markets, their suppliers, and the marketing intermediaries (wholesalers and retailers).
To respond to their environment, managers can manipulate the variables of the marketing mix, which include product, price structure, distribution system, and promotional activities. Personal selling is a major element of promotion.
With the advent of the marketing concept and its acceptance by most businesses, the job of the sales manager has been changed and sales operations have become but one portion of the firm's total marketing program. Marketing has evolved through several stages. It is now in the relationship-orientation stage, in which buyers and sellers make long-term commitments to do business with each other. For effective relationship marketing, all functions of the selling firm must work together as a team to help solve customer problems.
Setting specific, clear-cut objectives is an essential step in the management of a company. Once the company's objectives are set, management can develop appropriate strategies. Tactics are the organizational behaviors that execute the strategy.
Strategic planning across all levels in a firm should be coordinated. Strategic decisions at the top of the organization dictate what goes in the strategic marketing plan, which in turn guides the activities of the sales force. At the same time, top-level executives cannot plan effectively without listening to lower-level employees such as salespeople.
Several strategic trends have emerged in the past decade and are shaping the strategy of sales organizations. The Internet has had a significant impact on sales strategy-though sales organizations have not completely grasped how best to use it. In response to intensified competition and changes in customer purchasing patterns, many firms are now using multiple sales channels to reach a broad customer base and multiple relationship strategies to sell to different customers. Finally, today's managers must act in a socially responsible manner if they wish to succeed.
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As part of their jobs, salespeople perform a wide variety of activities. The majority of their time is spent in selling activities, which revolve around the eight steps of the personal selling process.
The first step is prospecting, which involves identifying and qualifying leads. There are a number of possible methods of generating leads. The most frequent source of leads is existing customers. In order to qualify a prospect—to decide if the prospect is a good one—it must be determined whether the prospect has a need for the product, can afford to buy the product, and is receptive to being called on by the salesperson.
The second step is preapproach planning. This includes all of the information-gathering activities salespeople perform to learn about their prospective customers. Then, based on this research, salespeople plan their presentations. As a part of their plan, they must decide on the objective for the call as well as on how they are going to approach the buyer and what kind of questions they will ask.
The third step is the approach, during which salespeople meet the buyer, introduce themselves, engage in momentary small talk, and, most important, gain the buyer’s agreement to move forward into the need assessment part of the presentation.
During the fourth step, identified as "need assessment," the salesperson must discover, clarify, and understand the buyer’s needs. The salesperson uses a variety of questions to encourage buyers to reveal their needs.
The presentation of the product or service and its features and benefits is the next step. The general goal for salespeople is to convince their customers that their company’s products and services will satisfy the customers’ needs better than those of a competitor. Today many salespeople use computers to help them make effective presentations.
The sixth step is handling the buyer’s objections. Buyers often question the price or value of the product, or they may not believe that the product will improve their operations. The salesperson must be able to overcome these objections as well as others. Sometimes salespersons will find it necessary to adapt their presentations in order to move the presentation forward.
At the seventh step, the salesperson must ask the buyer to commit to some action that will move the buyer closer to the sale. Often it takes multiple calls before the buyer is ready to commit to the sale.
The final step of the personal selling process is follow-up, which takes place after the purchase. Given that selling today is consistent with relationship marketing concepts, follow-up is arguably the most important step. To effectively build relationships, the salesperson must ensure customer satisfaction by following through with value-added service after the sale.
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An organization is an arrangement of activities involving a group of people. The goal is to arrange the activities so that the people who are involved can work better than they can individually. The sales force organizational structure has a significant influence on the implementation of a company’s strategic planning.
The general characteristics of a good organization are: (1) an organizational structure that reflects a market orientation; (2) an organization that is built around activities and not around the people performing these activities; (3) responsibilities that are clearly spelled out, and sufficient authority granted to meet the responsibility; (4) a reasonable span of executive control; (5) stability combined with flexibility; and (6) balanced and coordinated activities both within the sales department and between sales and nonmarketing departments.
Most sales organizations can be classified into one of three basic categories: a line organization, a line-and-staff organization, or a functional organization. A line organization is the simplest form of organization and is often appropriate for small firms. A line-and-staff organization enables a company to use staff assistants who are specialists in various areas of marketing. A functional organization carries specialization a step further by giving more line authority to the executive specialists. Also, a new horizontal structure being used by a number of firms is a much flatter organization with fewer levels of management.
In most medium- and large-sized companies, the sales forces are divided on some basis of sales specialization. The most frequently used bases are (1) geographical territories, (2) type of product sold, (3) classes of customer, or (4) some combination of these categories.
Giving each sales representative the responsibility for his or her own geographical territory is probably the most widely used form of sales force specialization. Specializing a sales force by type of product sold is often used when a company sells unrelated products, highly technical products, or several thousands of products. Product specialization may also involve the organizational concept of a product manager. Specialization by markets may be done on a channel-of-distribution basis or on an industry basis.
In the organization of an outside sales force, the use of the following four organizational strategies is increasing: strategic account management, team selling, independent sales forces, and e-commerce and telemarketing. For strategic account management, firms may use a separate sales force or executives, or they may establish a separate division. Selling teams comprised of people from several departments are being used to match the needs of customer buying centers. Sometimes a firm cannot afford or does not want to have its own sales force; in that case it will use some type of independent agent. Telemarketing is sometimes used as the primary selling method, but often it is used only to assist the sales force.
Organizing for international sales also presents some difficult challenges for sales management. Companies must decide whether to use independent selling organizations in the home country or in the foreign country, or to employ their own salespeople. Even if the company decides to use its own salespeople, it must still determine whether it will hire reps from its own country or foreign nationals.
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Selecting the right people (staffing the organization) is one of the most important steps in the management process. Sales force selection should be coordinated with an organization’s strategic marketing and sales force planning because the sales force often plays a major role in implementing the plans. Sales executives must understand the various civil rights laws and other government regulations that have a substantial impact on all phases of sales force selection.
Sales selection includes five phases. First, management determines how many and what kind of people are wanted. The second phase involves recruiting a number of applicants. The third phase involves processing these applicants and selecting the most qualified. Then those selected must be hired and assimilated into the organization.
Management can determine the number of salespeople to be hired by conducting an analysis based on the company’s past experiences and future expectations. To determine the type of person wanted, management should first conduct a job analysis and then write a job description for each position to be filled.
Determining the qualifications needed to fill the job is the most difficult part of the sales selection process. As yet, we simply have not been able to isolate the traits that make for success in selling. However, we do know that it is important to develop individualized hiring specifications for a given job in a given firm. As a starting point, management should study the job descriptions. They should also analyze the personal histories of their present and past salespeople to identify those characteristics that distinguish the successful reps from the less successful ones.
After determining the number and kind of salespeople wanted, the next major step in sales force selection is to recruit several applicants for the job. A well-planned, well-operated recruiting system is essential for a successful selection program. A company must identify the sources that are likely to produce good recruits and maintain a continuing relationship with these sources, even during periods when the firm is not hiring.
Many managers feel that referrals are the best source of sales recruits. These referrals may come from many places, including from within the company doing the recruiting. Often the present sales force is an excellent source of leads to new recruits. Also, some companies recruit new salespeople from employees in their offices or factories.
Another major source of recruits is other companies—competitors, customers, or noncompetitors. A company may try to hire competitors’ salespeople, or a firm’s customers may supply recruiting leads. Some companies will hire customers’ employees, although this must be done very carefully. Another source is salespeople working for noncompeting firms.
Increasingly, firms are using the Internet to identify candidates. Résumé search services will perform the search for a fee, or managers can access several job banks on the Internet.
Many companies recruit salespeople from educational institutions—universities, community colleges, vocational–technical schools, or high schools. Some firms rely on advertisements to reach prospective applicants. For some types of sales jobs, employment agencies can provide good prospects.
Voluntary (walk-in) applicants can be an excellent source, but usually there are not enough of these people. Part-time workers, such as students or homemakers, are excellent candidates for certain selling jobs.
Increasingly, companies are looking to women and minority groups as sources of applicants for sales jobs. This trend is expected to continue and to intensify. A company should periodically evaluate the effectiveness of its recruiting program to ensure that it is using the best sources available.
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The third phase in the sales force selection process involves (1) developing a system of tools and procedures to measure the applicants against the predetermined hiring specifications, and (2) actually using this system to select the salespeople. Processing applicants is a key activity in implementing a company’s strategic planning. When using any selection tool, management must make certain that it is complying with all pertinent laws and regulatory guidelines.
The application blank and the personal interview are the two most widely used selection tools. A short application blank may be used as an initial screening device. A longer application blank is a primary source of personal history information that can be used in hiring and in other phases of sales operations. An application blank is an excellent tool for getting information in three major categories of job qualifications—namely, the applicant’s physical condition, experience, and socioenvironmental information.
The personal interview, which is the most widely used of all selection tools, is designed to answer four questions regarding an applicant: (1) Is the person capable of excelling at this job? (2) How badly does the person want the job? (3) Will the job help the person realize his or her goals? (4) Will the person work to his or her fullest ability?
Unfortunately, interviews are not always an accurate predictor of job performance, because too many people don’t know how to interview. The predictive validity can be improved by using more than one interview, with more than one interviewer, in more than one place. Training the interviewers, providing a reasonable amount of structure to the interview, and using behavior-based interviews can also improve the process.
Interviews may vary according to (1) structure (guided versus nondirected interviews); (2) focus (behavior- versus performance-based interviews, or stress interviews); and (3) timing and method (early or late, telephone or face-to-face). Some companies are using videoconferencing to conduct interviews.
Psychological testing is another major selection tool, and researchers consider it the best tool for predicting job performance. The most commonly used tests cover four areas—mental intelligence, aptitudes, interests, and personality. There are some problems in using tests as part of the hiring process. Also, testing is more likely to be successful when firms are hiring a large number of inexperienced people using inexperienced recruiters, when the cost of failure is high, and when executives are free to use their own judgment.
Reference checks are widely used in the sales selection process. A personal visit or a phone call to a reference usually is a better method than letter writing. A key question to ask is whether the reference would hire the applicant. Credit reports and other outside sources may supplement reference checks. Assessment centers, the final hiring tool discussed briefly in this chapter, allow hiring companies to observe candidates perform simulated exercises.
Once acceptable recruits have been identified, the fourth phase of the staffing process begins: hiring. During preoffer planning, the acceptable recruits should be ranked. Then the company must decide what will be included in the offer and how it will be extended. The offer should include the compensation and the benefits. Some firms also offer to help the spouse or significant other find a job. Most offers specify a time by which the offer must be accepted.
Much of the sales recruit’s long-run success with a company depends on the fifth and final phase of the staffing process: socialization and assimilation. There is much to learn about the company, its people, and how things are done in the organization. The initial socialization begins during the preemployment period as the reps hear and read about the jobs they will soon begin. The second stage is the actual assimilation into the firm. During this period, the reps should become familiar with the firm’s operation and employees. Many firms are using mentoring programs to help salespeople feel comfortable in their new jobs.
In order to retain salespeople, companies must integrate them fully into the firm. The desire for social acceptance in the work group is so strong that the recruit who fails to gain it will probably quit. The sales manager can help employees initiate relationships by bringing the new employees together with their co-workers in social situations.
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A successful training program consists of four phases: training assessment, program design, reinforcement, and evaluation. Training is an important factor contributing to the success of salespeople. A good program begins by establishing program objectives and then determining who should be trained. The company must then identify individuals’ training needs. This is the key to how much training will be needed.
During the program design phase, the company must decide who will do the training, where and when it will be conducted, what topics will be covered, and what methods will be used. While line personnel have distinctive advantages as sales trainers, they often lack the essential teaching skills. Thus, training is often the responsibility of staff sales trainers. Many companies also use outside training specialists to provide part of their training.
New reps need enough initial training to do a respectable job. However, there are advantages to delaying training until the new person has some experience that can be carried into the classroom. Although initial training is often conducted centrally, most sales training is provided in the field.
Training programs cover a wide range of topics, such as knowledge of the product, company, customer, competitors, and business principles; selling and relationship-building skills; team selling; time management; computer-assisted selling; and legal constraints.
Among the many different methods used to train salespeople are lectures, discussions, demonstrations, role-playing, Web-based training, audiocassettes, and on-the-job training.
It is very important that companies provide a method for systematically reinforcing their training programs. Otherwise, salespeople are unlikely to change their behavior.
Increasingly, top management is demanding that training programs prove their worth. Training outcomes generally fall into four categories: the reactions of the salespeople, their learning, their behavioral change, and their performance results.
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All human behavior starts with motivation. That is, the reason people act in a certain way is that they are motivated to do so. Motivation is the desire to expend effort to fulfill an aroused need. Sales managers are interested in the effort salespeople desire to expend on various activities or tasks associated with the sales job.
Sales executives generally agree that effective motivation of a sales force is essential to the success of any sales organization. The problem lies in finding the right combination of motivators for any given group of salespeople. Motivating a sales force is difficult because of the unique nature of the sales job. Also, each rep is an individual who responds in his or her own way to a given motivator. Another motivational difficulty occurs when there is a conflict in management’s sales goals. Finally, changes in the market or selling environment pose motivational problems.
To motivate salespeople, managers must first understand their needs. Both Maslow’s hierarchy of needs theory and Hertzberg’s dual-factor theory help managers understand the kinds of needs salespeople have. Managers must also understand how their sales reps evaluate rewards. Salespeople will ask themselves: Are the rewards worth the effort? Are they equitable? Salespeople must also believe that rewards are based on performance.
Managers must make sure that salespeople not only know what is expected but also understand what kinds of activities will lead to better performance. Role theory helps managers understand that salespeople often experience role ambiguity and role conflict due to the nature of their jobs. This can make it difficult for the reps to understand management’s priorities for sales performance.
Management’s task is to select the right combination of motivators—the right motivational mix for a given sales force. Motivational tools fall into two categories: financial rewards, such as compensation, travel, merchandise, and sales contests; and nonfinancial rewards. Nonfinancial rewards include job enrichment, recognition and honors, promotions, encouragement and praise, and support from the corporate culture. Sales meetings are another method commonly used to motivate salespeople.
In the future, the problem of plateaued salespeople will continue to challenge managers. It is important that managers recognize the symptoms of plateauing and work with their plateaued reps to overcome these problems. Sales force segmentation—a system in which people are grouped according to their motivational needs and different rewards are offered to each group—provides an innovative approach to the challenge of motivating salespeople.
It is important to remember that motivation is only one component of successful sales performance. Motivational policies must be incorporated into a well-planned and well-executed sales management program.
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Compensation is the most widely used method for motivating a sales force. Most of our discussion in this chapter involved direct payments of financial compensation. When building a compensation plan, management must determine both the level of earnings and the method of paying the sales force. The sales force pay plan has a significant influence on the implementation of a company’s strategic marketing plan.
From the company’s perspective, the general goals of a good compensation plan are (1) to motivate salespeople, (2) to correlate a salesperson’s efforts and results with rewards, (3) to control salespeople’s activities, (4) to ensure proper treatment of customers, (5) to attract and keep competent salespeople, (6) to be economical yet competitive, and (7) to be flexible yet stable. From the salesperson’s perspective, a good compensation plan (1) provides both a steady income and an incentive income, (2) is easy for the sales rep to understand and simple for the company to administer, and (3) is fair.
When designing a pay plan, a company should first review its job descriptions to see what the reps are being paid to do. Then management should set specific goals for the pay plan. Compensation ideally should be based on items (1) that the sales force can control, and (2) that the company can measure objectively.
A major step in building a compensation plan is to establish the level of pay for the salespeople. Another major step in designing a compensation plan is to determine the method of compensation. Fundamentally, there are only three methods for compensating a sales force: (1) a straight salary, (2) a straight commission, and (3) some combination of compensation elements (salary, commission, bonus). Some form of a combination plan is used in about 68 percent of all sales forces.
A straight salary plan ensures a regular, stable income for the sales force. It enables management to direct the sales force into a variety of activities. The main drawback to a straight salary plan is that it does not provide any direct incentive to the sales force. It is also a fixed cost to the company. Generally speaking, a straight salary plan is best used (1) when management wants a fully balanced sales job, and (2) when management can supervise the salespeople so that they are properly motivated.
The main advantage of a straight commission plan is the tremendous incentive it gives the sales force to do what the commission is based on. To management, a straight commission plan is a variable expense. Under a straight commission plan, it may be difficult to direct the activities of the salespeople. There are several situations in which a straight commission plan is best. With a straight commission pay plan, management must decide on the base and rates for paying the commission. Also, policies are needed regarding split commissions and drawing accounts. Management must also decide whether it will limit its sales reps’ earnings.
Combination pay plans typically are a compromise designed to retain as much as possible the strong points and to overcome the weaknesses of straight salary or straight commission. Combination plans include some type of bonus paid for above normal performance. These bonuses are often tied to quotas, which are performance goals.
Most sales compensation plans also include indirect monetary benefits such as paid vacation time and company insurance plans. The final steps in designing a pay plan involve pretesting the plan, introducing it to the sales force, installing the plan, and evaluating it periodically.
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The handling and control of expense accounts is one of the most sensitive areas in sales management. Expense accounts are strictly regulated by the Internal Revenue Service, which stipulates in some detail what is and is not tax deductible. Management should identify in writing, and in detail, what expenses it will cover for reps. Normally, sales reps are reimbursed for their business expenses plus some personal costs that would not have been necessary if the reps were at home. A sound expense plan should be simple to administer, neither enrich nor impoverish the reps, and control the level of selling expenses.
Management must decide if the company will pay for the sales force’s field-selling costs or if the reps should pay their own expenses. Salespeople working on a straight commission usually pay their own expenses. Under any other compensation plan, however, the company should pay the rep’s expenses as an item separate from the compensation plan.
In the most widely used expense-control plan—the unlimited-payment plan—reps are reimbursed for all legitimate expenses, but they must itemize expenses and document certain large expenditures. Under a limited-payment plan, management either sets limits for certain items (such as food, lodging, and entertainment) or else provides a fixed total allowance for some time period.
A company should develop a plan for controlling the sales force’s transportation costs. When reps travel by car, management must decide whether to own or lease the cars, or to have the reps use their own cars. If reps use their own vehicles, the company should formulate a program to reimburse them. Often some form of fixed allowance per mile or per time period is used. However, the preferred method is to develop some system of flexible allowances that considers the variation in the miles each rep drives and the costs of driving in the rep’s area.
The greatly increased costs of travel and entertainment have encouraged most companies to attack such expenses aggressively by several means. In many cases, entertainment has been curtailed. The Internet and telemarketing have entered the picture because they are less expensive for contacting customers than field sales calls. Travel plans are now more carefully monitored to limit costs than was previously the case.
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Leadership—a process in which one person influences other people’s behavior toward the accomplishment of specific goals—is essential for a sales manager to be effective. Effective leaders tend to possess similar personal characteristics, such as high levels of self-confidence, initiative, energy, creativity, and maturity. In addition, effective leaders possess advanced managerial skills, including the ability to solve problems, communicate, persuade, and understand what motivates each salesperson.
Leadership style refers to the specific set of leader behaviors that sales managers put forth in a given situation. There are two distinct styles: transactional leadership and transformational leadership. Transactional leadership involves those supervisory activities regarding the day-to-day operation and control of the sales force. It presents a short-term, task-oriented focus on getting the job done. Transactional leaders provide one-way communication to salespeople in the form of verbal feedback, letting them know what they are doing right and wrong.
Transformational leadership changes (transforms) the basic values, beliefs, and attitudes of followers such that they are willing to perform at levels above and beyond expectations. Those who use this style are outstanding leaders—usually referred to as charismatic. The primary transformational leader behaviors are articulating a vision of the future, fostering group goals, being a role model, and providing individualized support.
Both transactional and transformational leadership can be an effective way to lead salespeople. The situation determines the appropriate style or combination of styles. The best sales managers instinctively know the right mix of leader behaviors to use for any given situation.
The best way to lead a sales force is through face-to-face, personal contact. Due to lack of time or to distance, however, sales managers must supplement personal contact with other tools and techniques of leadership. These include sales reports, telecommunications, sales meetings, printed aids, and indirect supervisory aids.
A number of positive outcomes result from the right combination and amount of leadership. First, the salespeople are generally better trained and the work environment is characterized by mutual respect and trust among all employees. This in turn leads to higher performing salespeople who are more likely to engage in citizenship behaviors. Finally, the right leadership leads to a sales force with high group morale.
Some frequent problems encountered by leaders include poor performance, substance abuse, expense misappropriation, other unethical behavior, and sexual harassment. Each problem needs to be dealt with proactively to avoid potentially serious consequences.
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The sales forecast is the basis of most corporate planning. From the forecast, the company plans activities and determines production levels. Should the forecast be in error, management may face serious consequences.
The company sales forecast is closely related to the market potential of the products or services it sells. Thus, the forecasting process begins with understanding the firm’s market and sales potentials. The basic techniques for determining market potentials are market-factor estimations, surveys of buyer intentions, and test markets. Territory potentials are determined by using a market index to approximate the total sales potential among the territories.
Good forecasting rests on a careful analysis of the factors that affect sales of the product. A perceptive analysis of buyers or end users and their reasons for purchase or use should play a significant role in the sales forecasting process. The impact of changes in the firm’s marketing plans must also be incorporated into the forecast.
Many different sales forecasting methods are available to managers. One group relies on surveys of executives, customers, and the sales force to derive the forecast. A second group applies mathematical methods to company records or historical data to yield a sales forecast. A third group employs methods linked to the operation of the company to forecast sales. Each of the forecasting methods possesses several advantages and disadvantages, which both the forecaster and the firm should clearly understand before the forecasting process begins.
The budget is a financial plan that the manager uses to plan for profits by anticipating revenues and expenditures. Budgeting serves several purposes: planning, coordination and control, and evaluation. There are primarily two methods of budgeting. First is the percentage-of-sales method, whereby expenses are estimated as a percentage of sales. Second is the objective-and-task method, where the manager determines the tasks necessary to achieve the objectives and then estimates the costs of performing these tasks. Both methods rely on developing an accurate sales forecast.
There are three basic budgets for the sales department. These are the sales budget, the selling-expense budget, and the administrative budget.
The budgetary process begins in the sales department with the formulation of a sales forecast. From that figure, a detailed sales budget is developed that contains the expected sales of each item in the product line. The production budgets and the selling-expense budgets are developed from the sales budget.
Once the sales forecast and budgets are developed, they become the standard by which the manager judges performance.
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A sales territory is comprised of a number of present and potential customers located within a geographical area. This area is assigned to a salesperson or to an intermediary. There are several benefits to be derived from establishing sales territories. However, formal territories may not be needed in a small company with a few salespeople selling in a local market.
Different procedures are available for designing sales territories, and some of these approaches involve sophisticated mathematical models. Basically, however, a company’s territorial structure depends on (1) the potential business in the company’s market and (2) the workload required from the sales force. The plan we propose includes three broad steps: The first step is to select a geographical control unit to serve as a territorial base. Commonly used control units are states, counties, cities, zip-code areas, and metropolitan statistical areas (MSAs). The second step is to determine the location and potential of each customer. The third step is to determine the basic territories, which can be accomplished manually by either the buildup or the breakdown method.
Using the buildup method, management determines the desirable call frequencies for each customer and the daily call rate for the sales rep. Contiguous control units are then combined until the total annual calls needed in the control unit equal the total number of calls the rep can make in a year.
Under the breakdown method, we start with sales forecasted for the total market and allocate it to the control units based on some type of market index. Then the sales volume expected from each salesperson is determined. With this input, management can set its basic territories by combining control units until the total potential in those units at least equals the expected sales from each rep.
Alternatively, the basic territories can be determined by a computerized process, such as GIS. A complete GIS system requires software, hardware, territory data, and trained personnel. Note that whatever method is used for step three, the territories’ boundaries may have to be modified to account for special circumstances in that geographic area.
After the territories have been established, management must assign individual salespeople to each district. As companies and markets change over time, the territorial structures may become outdated and need revision. Revising boundaries is usually a very difficult job. A key principle that management should follow is to avoid overlapping territories.
Once sales territories are designed and reps are assigned to them, management should turn its attention to planning how each rep will cover his or her territory. The management of territorial coverage involves two main tasks—routing the salespeople and managing their time.
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A particularly interdependent strategic relationship exists between planning and performance evaluation in the sales force management process. In this management process, a marketing audit ideally should play a key role. A marketing audit is a total evaluation program. As such, it is a comprehensive periodic review and evaluation of the marketing system in an organization. A sales management audit evaluates sales objectives, strategies, and tactics.
The evaluation process is essentially a three-stage task. First, find out what happened—actual results are compared with budgeted goals. Second, find out why it happened—what factors accounted for the variation between goals and results. Third, decide what to do about the situation—that is, plan next period’s activities.
Because of the time and cost needed for a full-scale marketing audit, many companies evaluate only the major components of their marketing programs. One such performance evaluation includes an analysis of (1) sales volume, (2) marketing costs, and (3) salespeople’s performance. A sales volume analysis combined with a marketing cost analysis constitutes a marketing profitability analysis.
Performance evaluation is a key tool in reducing the misdirected marketing effort in an organization. Misdirected marketing effort means that a company is expending much effort but getting relatively few results. The 80–20 principle illustrates misdirected marketing effort. That is, marketing efforts (costs) are related to the number of marketing units (territories, products, customers), rather than the sales volume or profit derived from these marketing units.
The basic reasons for misdirected marketing efforts are that management lacks (1) knowledge of the disproportionate spread of marketing effort and (2) reliable standards for determining (a) what should be spent on marketing and (b) what results should be derived from these expenditures.
A sales volume analysis is a study of a company’s actual sales volume compared with the budgeted sales goals. This volume analysis should be done in great detail. That is, the company’s sales should be analyzed in total and also by territory, products, customer groups, salespeople, and order size. In each of these subdivisions, the company’s performance should be compared with industry figures. In this way, management can measure its performance against the competition.
Detailed sales performance analysis has been improved immeasurably by advances in computer and Internet-related technology. Sales force automation (SFA) software, for example, helps sales organizations manage information efficiently. This technology makes performance evaluation much easier and faster than ever before.
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A marketing cost analysis is a detailed study of a company’s distribution costs. It is undertaken to discover which segments (territories, products, customers) of the company’s marketing program are profitable and which are not. A marketing cost analysis is a part of a company’s evaluation of its marketing performance.
In marketing cost analysis, we need to understand the differences between accounting-ledger costs and activity-category costs. Another useful distinction is the one between direct and indirect expenses. In a marketing cost analysis, one of the major problems is the difficulty of allocating costs. Management must allocate ledger accounts into activity categories. Then each total activity cost must be allocated to the marketing segment (territory, product, customer group) being analyzed. Cost allocation is especially difficult in the case of indirect expenses.
The difficulty of allocating indirect costs leads to the contribution-margin versus full-cost controversy. In the contribution-margin approach to marketing cost analysis, only the direct costs incurred by the marketing unit (territory or product, for example) are allocated to that unit. The unit’s gross margin minus its direct costs equals the amount the unit contributes to pay the company’s overhead (indirect expense). In the full-cost approach, all costs (direct and indirect) are allocated to the various marketing units being studied. In this way, management tries to determine the unit’s net profit.
The company’s marketing costs can be analyzed in three ways. One way is to analyze the costs as they appear in the accounting ledgers and on the company’s income and expense (profit-and-loss) statement. A second approach is to analyze the marketing costs after they have been allocated to activity categories. The third type occurs after each activity cost has been allocated to the sales territories, products, or other marketing units being studied.
The types of analyses we have summarized tell management what happened. Then the executives must try to determine why these results occurred. Finally, management must decide what changes are needed in the marketing program to correct the misdirected effort.
A marketing cost analysis can be especially useful in identifying and remedying the small-order problem that occurs in so many firms.
Return on investment (ROI) is another tool that management can use in evaluating sales performance and in making marketing decisions. A variation of the ROI concept is ROAM, return on assets managed. The ROAM concept is especially useful for evaluating the performance of field sales managers.
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A fair and accurate evaluation of the company’s sales force is a critical and difficult task. The manager’s appraisal of the salespeople is important not only because pay and promotions should be based on such rating, but also because good supervision and training should be based on an objective evaluation of the sales rep’s performance. However, the task is difficult. Subjective methods leave much to be desired, as managerial biases may distort the ratings.
The factors affecting a person’s performance are many and varied. Moreover, many of those factors are beyond the person’s control. It is critical that a person be evaluated only on factors over which he or she has control.
First, management should set some basic policies on the evaluation of the sales personnel. It should establish who will do the rating, when and how often it will be done, how the results will be used, and on what bases people will be rated. Both output and input factors should be measured in the process. Output factors include measures such as sales, orders taken, gross margins realized, new accounts, and lost accounts. They are all quantitative. The input factors are both quantitative and qualitative.
Calls per day and days worked are examples of quantitative measures. Sales presentation quality, product knowledge, and customer relations are examples of qualitative factors.
By comparing the quantitative input and output measures, various efficiency ratings can be developed. The basic performance equation is
Sales 5 Days worked 3 Call rate 3 Batting average 3 Average order
By factoring each element in the equation, the sales manager can obtain a good picture of what each rep is doing and why he or she is successful or unsuccessful. Company records are the basic source of information needed for such evaluations.
The qualitative factors are more difficult to measure. The evaluator’s subjective biases may influence his or her ratings of these factors. The use of a well-designed merit rating form can help in the measurement of these factors.
Next, some standards must be developed. Relative standards such as what other groups are doing are widely used. However, there is a place for some absolute standards such as total selling costs and days worked.
Finally, performance must be compared with the standards and the evaluation must be discussed with the salesperson.
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Ethics may be defined as moral standards of behavior. Sales managers and salespeople face many different ethical dilemmas. In the United States, many ethical decisions are actually legal questions. Our system of laws standardizes our interpretation of many ethical situations by making them illegal. However, there are still many situations, not covered by the law, in which ethics becomes an important factor.
It is easy to be ethical when it does not cost you anything—when you are winning. The test comes when things are not going well. Then there may be real pressure to compromise your personal ethics. There is an increasing awareness and concern over ethics in selling. Adherence to ethical standards is becoming increasingly important.
The problem is to determine what the ethical standards are. Society lacks commonly accepted standards of behavior. Ethical considerations are involved in many of the relationships sales executives have with their sales forces, their companies, and their customers. Customer relations, especially involving information, gifts, and entertainment, can have serious ethical overtones.
When setting ethical standards, it is important to take a long-run perspective. One good ethical guideline to follow is to do what you would feel comfortable explaining to your family, your friends, or even to the public at large on television. A company may help establish an ethical climate by taking a long-run perspective on business decisions, by developing a written code of ethics that managers are expected to enforce, by providing ethical role models through management’s words and actions, and by providing ethical training.
Public regulation touches a company’s marketing department more than any other phase of the company’s operations. Both the employee and the company are responsible for compliance with federal regulations. Government regulation has occurred in several areas that affect sales: price discrimination, unfair competition, Green River Ordinances, and cooling-off laws.