The original and oldest form of direct marketing is the field sales call. To locate prospects, develop them into customers, and grow the business, most industrial companies rely heavily on a professional sales force or hire manufacturers’ representatives and agents. Many consumer companies such as Allstate, Amway, Avon, Mary Kay, Merrill Lynch, and Tupperware use a direct-selling force.
U.S. firms spend more than a trillion dollars annually on sales forces and sales force materials—more than on any other promotional method. In 2012, more than 10 percent of the total workforce worked full time in sales occupations, both nonprofit and for profit.24 Hospitals and museums, for example, use fund-raisers to contact donors and solicit donations. In asserting that selling is the core function of every company, Boston Beer founder Jim Koch notes, “Without sales, there is no business to manage.”25 For many firms, sales force performance is critical.26
SOBE John Bello, founder of SoBe nutritionally enhanced teas and juices, has given much credit to his sales force for the brand’s successful ascent. Bello claims that the superior quality and consistent sales effort from the 150 salespeople the company had at its peak was directed toward one simple goal: “SoBe won in the street because our salespeople were there more often and in greater numbers than the competition, and they were more motivated by far.” SoBe’s sales force operated at every level of the distribution chain: At the distributor level, steady communication gave SoBe disproportionate focus relative to the other brands; at the trade level, most senior salespeople had strong personal relationships with retailers such as 7-Eleven, Costco, and Safeway; and at the individual store level, the SoBe team was always at work setting and restocking shelves, cutting in product, and putting up point-of-sale displays. According to Bello, bottom-line success in any entrepreneurial endeavor depends on sales execution.
Although no one debates the importance of the sales force in marketing programs, companies are sensitive to the high and rising costs of maintaining one, including salaries, commissions, bonuses, travel expenses, and benefits. Not surprisingly, companies are trying to increase sales force productivity through better selection, training, supervision, motivation, and compensation.27
The term sales representative covers six positions, ranging from the least to the most creative types of selling:28
- Deliverer—A salesperson whose major task is the delivery of a product (water, fuel, oil).
- Order taker—An inside order taker (standing behind the counter) or outside order taker (calling on the supermarket manager).
- Missionary—A salesperson not permitted to take an order but expected rather to build goodwill or educate the actual or potential user (the medical “detailer” representing an ethical pharmaceutical house).
- Technician—A salesperson with a high level of technical knowledge (the engineering salesperson who is primarily a consultant to client companies).
- Demand creator—A salesperson who relies on creative methods for selling tangible products (vacuum cleaners, cleaning brushes, household products) or intangibles (insurance, advertising services, or education).
- Solution vendor—A salesperson whose expertise is solving a customer’s problem, often with a system of the company’s products and services (for example, computer and communications systems).
Salespeople are the company’s personal link to its customers. In designing the sales force, the company must develop sales force objectives, strategy, structure, size, and compensation (see Figure 22.1).
1. SALES FORCE OBjECTIVES AND STRATEGY
The days when all the sales force did was “sell, sell, and sell” are long gone. Sales reps need to know how to diagnose a customer’s problem and propose a solution that can help improve the customer’s profitability. The best salespeople even go beyond the customer’s stated problems to offer fresh insights into the customer’s business model and identify unrecognized needs and unstated problems.29
In performing their jobs, salespeople complete one or more specific tasks:
- Prospecting. Searching for prospects or leads
- Targeting. Deciding how to allocate their time among prospects and customers
- Communicating. Communicating information about the company’s products and services
- Selling. Approaching, presenting, answering questions, overcoming objections, and closing sales
- Servicing. Providing various services to the customers—consulting on problems, rendering technical assistance, arranging financing, expediting delivery
- Information gathering. Conducting market research and doing intelligence work
- Allocating. Deciding which customers will get scarce products during product shortages
To manage costs, most companies are choosing a leveraged sales force that focuses reps on selling the company’s more complex and customized products to large accounts and uses inside salespeople and online ordering for low- end selling. Salespeople handle fewer accounts and are rewarded for key account growth; lead generation, proposal writing, order fulfillment, and postsale support are turned over to others. This is far different from expecting salespeople to sell to every possible account, the common weakness of geographically based sales forces.30
Companies must deploy sales forces strategically so they call on the right customers at the right time in the right way, acting as “account managers” who arrange fruitful contact between people in the buying and selling organizations. Selling increasingly calls for teamwork and the support of others, such as top management, especially when national accounts or major sales are at stake; technical people, who supply information and service before, during, and after product purchase; customer service representatives, who provide installation, maintenance, and other services; and office staff, consisting of sales analysts, order expediters, and assistants.31
To maintain a market focus, salespeople should know how to analyze sales data, measure market potential, gather market intelligence, and develop marketing strategies and plans. Especially at the higher levels of sales management, they need analytical marketing skills. Marketers believe sales forces are more effective in the long run if they understand and appreciate marketing as well as selling.
Too often marketing and sales are in conflict: the sales force complains marketing isn’t generating enough leads, and marketers complain the sales force isn’t converting them (see Figure 22.2). Improved collaboration and communication between these two can increase revenues and profits.32
Jim Farley, CMO at Ford, notes that “the coolest thing about my job at Ford is that I’m in charge of both marketing and sales” and maintains that it is a mistake to have separate people in charge. He sees the best salespeople at Ford as a cross between problem solvers, who help explain and customize all the sophisticated automobile electronics, and concierges, who help with all the steps in the complicated process of buying a car.33 To improve mutual understanding, Honeywell moves marketers into sales and vice versa when appropriate, as well as getting them together for joint meetings throughout the year.34
Once the company chooses its strategy, it can use a direct or a contractual sales force. A direct (company) sales force consists of full- or part-time paid employees who work exclusively for the company. Inside sales people conduct business from the office and receive visits from prospective buyers, and field sales people travel and visit customers. A contractual sales force consists of manufacturers’ reps, sales agents, and brokers who earn a commission based on sales.
2. SALES FORCE STRUCTURE
The sales force strategy also has implications for its structure. A company that sells one product line to one endusing industry with customers in many locations would use a territorial structure. A company that sells many products to many types of customers might need a product or market structure.
Some companies need a more complex structure and adopt some combination of four types of sales force: (1) a strategic market sales force assigned to major accounts (see below); (2) a geographic sales force calling on customers in different territories; (3) a distributor sales force calling on and coaching distributors; and (4) an inside sales force marketing and taking orders online and via phone.
Established companies need to revise their sales force structures as market and economic conditions change. SAS, seller of business intelligence software, reorganized its sales force into industry-specific groups to serve such customers as banks, brokerages, and insurers and saw revenue soar by 14 percent.35 “Marketing Insight: Major Account Management” discusses a specialized form of sales force structure.
3. MARKETING INSIGHT Major Account Management
Marketers typically single out for attention major accounts (also called key accounts, national accounts, global accounts, or house accounts). These are important customers with multiple divisions in many locations that use uniform pricing and coordinated service for all divisions. A major account manager (MAM) usually reports to the national sales manager and supervises field reps calling on customer plants within their territories. The average company manages about 75 key accounts. If a company has several such accounts, it’s likely to organize a major account management division, in which the average MAM handles nine accounts.
Large accounts are often handled by a strategic account management team with cross-functional members who integrate new-product development, technical support, supply chain, marketing activities, and multiple communication channels to cover all aspects of the relationship. Procter & Gamble has a strategic account management team of 300 staffers to work with Walmart in its Bentonville, Arkansas, headquarters, with more stationed at Walmart headquarters in Europe, Asia, and Latin America. P&G has credited this relationship with saving the company billions of dollars.
Major account management is growing. As buyer concentration increases through mergers and acquisitions, fewer buyers are accounting for a larger share of sales. Many are centralizing their purchases of certain items, gaining more bargaining power. And as products become more complex, more groups in the buyer’s organization participate in the purchase process. The typical salesperson alone might not have the skill, authority, or coverage to sell effectively to the large buyer.
In selecting major accounts, companies look for those that purchase a high volume (especially of more profitable products), purchase centrally, require a high level of service in several geographic locations, may be price sensitive, and want a long-term partnership. Major account managers act as the single point of contact, develop and grow customer business, understand customer decision processes, identify added-value opportunities, provide competitive intelligence, negotiate sales, and orchestrate customer service.
Many major accounts look for added value more than a price advantage. They appreciate having a single point of dedicated contact, single billing, special warranties, EDI links, priority shipping, early i nformation releases, customized products, and efficient maintenance, repair, and upgraded service. And there’s the value of goodwill. Personal relationships with people who value the major account’s business and have a vested interest in its success are compelling reasons for remaining a loyal customer.
Sources: Noel Capon, Dave Potter, and Fred Schindler, Managing Global Accounts: Nine Critical Factors for a World-Class Program, 2nd ed. (Bronxville, NY: Wessex Press, 2008); Peter Cheverton, Global Account Management: A Complete Action Kit of Tools and Techniques for Managing Key Global Customers (London, UK: Kogan Page, 2008); Malcolm McDonald and Diana Woodburn, Key Account Management: The Definitive Guide, 2nd ed. (Oxford, UK: Butterworth-Heinemann, 2007); Jack Neff, “Bentonville or Bust,” Advertising Age, February 24, 2003.
More information can be obtained from SAMA (Strategic Account Management Association) and the Journal of Selling and Major Account Management.
4. SALES FORCE SIZE
Sales representatives are one of the company’s most productive and expensive assets. Increasing their number increases both sales and costs. Once the company establishes the number of customers it wants to reach, it can use a workload approach to establish sales force size. This method has five steps:
- Group customers into size classes according to annual sales volume.
- Establish desirable call frequencies (number of calls on an account per year) for each customer class.
- Multiply the number of accounts in each size class by the corresponding call frequency to arrive at the total workload for the country, in sales calls per year.
- Determine the average number of calls a sales representative can make per year.
- Divide the total annual calls required by the average annual calls made by a sales representative to arrive at the number of sales representatives needed.
Suppose the company estimates it has 1,000 A accounts and 2,000 B accounts. A accounts require 36 calls a year, and B accounts require 12, so the company needs a sales force that can make 60,000 sales calls (36,000 + 24,000) a year. If the average full-time rep can make 1,000 calls a year, the company needs 60 reps.
5. SALES FORCE COMPENSATION
To attract top-quality reps, the company must develop an attractive compensation package. Sales reps want income regularity, extra reward for above-average performance, and fair pay for experience and longevity. Management wants control, economy, and simplicity. Some of these objectives will conflict. No wonder compensation plans vary tremendously among and even within industries.
The company must quantify four components of sales force compensation. The fixed amount, a salary, satisfies the need for income stability. The variable amount, whether commissions, bonus, or profit sharing, serves to
stimulate and reward effort.36 Expense allowances enable sales reps to meet the costs of travel and entertaining on the company’s behalf. Benefits, such as paid vacations, sickness or accident benefits, pensions, and health and life insurance, provide security and job satisfaction.
Fixed compensation is common in jobs with a high ratio of nonselling to selling duties and jobs where the selling task is technically complex and requires teamwork. Variable compensation works best where sales are cyclical or depend on individual initiative. Fixed and variable compensation give rise to three basic types of compensation plans—straight salary, straight commission, and combination salary and commission. One survey revealed that more than half of sales reps receive 40 percent or more of their compensation in variable pay.37
Straight-salary plans provide a secure income, encourage reps to complete nonselling activities, and reduce incentive to overstock customers. For the firm, these plans deliver administrative simplicity and lower turnover. When semiconductor company Microchip dropped commissions for its sales force, sales actually increased.38 Straight-commission plans attract higher performers, provide more motivation, require less supervision, and control selling costs. On the negative side, they emphasize getting the sale over building the relationship. Combination plans feature the benefits of both plans while limiting their disadvantages.
Plans that combine fixed and variable pay link the variable portion to a wide variety of strategic goals. One current trend deemphasizes sales volume in favor of gross profitability, customer satisfaction, and customer retention. Other companies reward reps partly on sales team or even company-wide performance, motivating them to work together for the common good.
Source: Kotler Philip T., Keller Kevin Lane (2015), Marketing Management, Pearson; 15th Edition.