1. 1 Sales & Distribution Management (2005) Martin Khan Instructor Abdel Fatah Afifi MA&T, MBA, BA, ACPA, CPT 1 st Semester 2009/2010

2. 2 Chapter 2 Sales Strategy Formulation

3. 3  Sales strategy is the game plan adopted to achieve the desired objectives. It helps a company to reach a desired position from the existing position.

4. 4 What are the steps in formulating sales strategy? Sales strategy basically involves three steps: 1. Market analysis 2. Setting objectives 3. Designing sales strategy

5. 5 1- Market analysis Is a prerequisite to objective setting. The company would need to know: 1. The current size and growth rate of the market. 2. Consumer needs, attitude and trends in purchasing behavior. 3. Competitor analysis. 4. Expectations to their future actions.

6. 6 1- Market analysis (cont.) Type of competitions: 1. Pure competition, 2. Monopolistic competition, 3. Oligopolistic competition.

7. 7 2- Setting sales objectives Objectives are standards against which performance is measured. These are two types: 1. Qualitative objectives are long term whereas Quantitative objectives. 2. Quantitative objectives relate to operating results.

8. 8 2- Setting sales objectives Quantitative Goals are set in terms of: 1. Sales volume 2. Sales cost 3. Accounts receivable 4. Inventory levels 5. Dealer support 6. Feedback input

9. 9 3- Designing sales strategy After the market analysis has been carried out which involves: 1. The study of environmental factors, 2. The SWOT analysis. 3. The objectives are set, and then, 4. The sales strategy is formulated.

10. 10 3- Designing sales strategy (Cont.) The sales strategy is formulated by considering: 1. The type of sales force required. 2. The size of the sales force required. 3. Territory design. 4. Channel support and coordination.

11. 11 3.1 : Type of sales force needed 1. Product specialists: For highly technical products, e.g., marketing of banking services, Complicated products like computers. 1. Market specialists: Know the different markets and can adopt different sales approaches for different markets. They need to know more than one line of products. There can be compensation of both products and market specialists in the sales force of a firm.

12. 12 3.2 : Determination of the size of sales force There are three methods of determining the size of sales force:  Incremental Methods.  Work Load Methods.  Sales Potential Methods.

13. 13 3.3: Basis for territory design 1. Geographical basis 2. Sales potential basis 3. Servicing requirement basis 4. Work load basis

14. 14 3.4 : Channel support and coordination 1. Intensive Distribution 2. Extensive Distribution 3. Selective Distribution 4. Exclusive Distribution 5. Vertical Integration

15. 15 3.4 : Channel support and coordination (cont.) 1. Intensive Distribution: Distribution is made to all the outlets which are many in number and spread in a big area. Maximum exposure to the product is given. 2. Extensive Distribution: Distribution in which we cover a great area but do not concentrate an all customers in the area. Extensive distribution covers a large area and distribution of goods in extensively done. 3. Selective Distribution: Goods are distributed to selected outlets.

16. 16 3.4 : Channel support and coordination (Cont.) 4. Exclusive Distribution: This is done exclusively by one dealer who provides after sales service like in automobiles. This is done for the cultivation of an exclusive image. This requires greater motivation, greater coordination and efficiency in operation. 5. Vertical Integration: Process of requiring management membership rights at various levels of distribution channel.

17. 17 Business Strategy Business Strategy Marketing Strategy Marketing Strategy LEVEL 1 Top Management Decisions Figure 2-1 The Sales Force Decision Sequence Structure Competencies Leadership LEVEL 3 Sales Force Program Decisions Sales Process Activities Account Relationship Strategy Go-to-Market Strategy Supply Chain Management (SCM) Customer Relationship Management (CRM ) LEVEL 2 Strategy Implementation Decisions Product Development Management (PDM)

18. 18 Figure 2-2: Factors Influencing Strategic Management Distinct competencies Marketing Financial Technology Information Environmental constraints Legal & regulatory Demographics Economic Conditions Technology Competitive conditions Sociocultural factors Strategic Management Planning Resources Financial R&D Personnel Brand Equity Production Firm’s history management culture

19. 19 1.What is the best way to segment the market? 2.What are the essential activities required by each segment? 3.What group of go-to-market participants should perform the essential activities? 4.Which face-to-face selling participants should be used? Steps in Developing a Go-to-Market Strategy

20. 20 Direct Sales Force Agents Distributors Retailers IntegratorsAlliances Advertising Promotion Direct Mail Tele- marketing Internet DirectIndirectNon-Sales Force OptionsSales Force Options Company Customers and Prospects Potential Go-to-Market Participants

21. 21 Customer Base Account Teams Geographic Sales Force Direct Sales Force Industry Teams Outbound Inbound TelemarketingPartnersInternet Go-to-Market Strategy: A Large Computer Manufacturer

22. 22 Customer Base Account Teams Direct Sales Force Inbound Telemarketing Go-to-Market Strategy: A Large Chemical Company

23. 23 Product Development Management sub-processes 1. Identify customer needs for better solutions 2. Discovering and designing new product solutions 3. Developing new solution prototypes 4. Managing internal departmental priorities and involvement 5. Designing activities to speed-up development process 6. Launching new and redesigned offerings

24. 24 Supply Chain Management Sub- processes 1. Selecting and managing supplier relationships 2. Managing inbound logistics 3. Managing internal logistics 4. Managing outbound logistics 5. Designing product assembly and batch manufacturing 6. Managing process technology 7. Order, pricing, and terms management 8. Managing channel partners 9. Managing product installation and maintenance

25. 25 Customer Relationship Management Sub-processes 1. Identifying high value prospects 2. Learning about product usage and application 3. Developing and executing advertising and promotion programs 4. Developing and executing sales programs 5. Developing and executing customer service programs 6. Acquiring and leveraging customer contact information systems 7. Managing customer contact teams 8. Enhancing trust and customer loyalty 9. Cross-selling and up selling of offerings

26. 26 Sales Force Selling Activities 1. What are their non-selling responsibilities? 2. How much customer face-time will salespeople have? 3. How will sales leads be generated? 4. How much time will be spent with new prospects? 5. How will business with existing customers be grown? 6. With whom in the customer ’ s organization will the sales force interact? 7. What support will be needed to consummate a sale? 8. How will customers be serviced?

27. 27 Determination of the size of sales force There are three methods of determining the size of sales force: 1. Incremental Methods. 2. Sales Potential Methods. 3. Work Load Methods.

28. 28 Incremental Methods It says that we can increase the size of the sales force till the incremental revenue exceeds incremental cost. Assumptions: Profits will increase when additional sales person are employed. Example:  If we have 10 salesmen already, then on adding one extra salesman, the sales volume, cost of goods (60% of sales), and gross margin (40% of sales), vary as depicted in the following table:

29. 29 If we have 10 salesmen already, then on adding one extra salesman, the sales volume, cost of goods (60% of sales), and gross margin (40% of sales), vary as Gross margin 40% Cost of goods sold $ Sales volume in $ No. of salesmen 10.00015.00025.00011 8.00012.00020.00012 6.0009.00015.00013 4.0006.00010.00014

30. 30 Suppose all salesmen receive a salary and travelling expense of 2000 + 1500 and 6% commission on sales. Calculate the Net Profit in each level of number of salesmen? Net profit(Sal + T) + Comm. Gross MarginNo. of salesmen 10000 – 5000 = 5000 (2000 + 1500)+ 25.000 * 6% = 3500+1500 =5000 10.00011 8000-4700 =33003500 +1200 =4700 8.00012 6000 – 4400=1600 3500 +900= 44006.00013 4000 -4100 = - 100 3500 + 600 =4100 4.00014 We see that the 14 th salesman is not feasible as there is a loss of 100 if he is included in the sales force.

31. 31 Sales Potential Methods 1. Management considers what an average sales person with an average performance will accomplish. 2. Amount of sales will be made by the salesman. 3. Find out the forecasted sales volume. 4. Divide the total sales volumes by the work which one sales person can do. 5. Then S/P will give the number of sales person required. In this method we also make allowances for the rate of turnover of sales person.

32. 32 This is the easiest of all the methods. The formula for this method is: N = S / P Where, N= Number of sales persons S= Forecasted sales volume P=Estimated sales productivity of one person Sales Potential Methods

33. 33 Sales Potential Methods Example: If: S = $ 100,000 and, P = $ 10,000 Then: N = S / P = 100,000 / 10,000 = 10

34. 34 Sales Potential Methods Modified Formula If rate of Turnover is 10%, Then, modified formula for the number of sales persons will be: N = S / P + T (S / P) = (S / P) (1 + T), where T = rate of turnover For the above set of values: N= (100,000 / 10,000) + 10% (100,000 / 10,000) = 10 + 1 = 11 sale persons.

35. 35 Work Load Methods  This is the most complex method.  According to this method, the assumption is that all sales personnel will shoulder equal responsibilities.  First the total work load is estimated and then it is divided equally among all the sales people.

36. 36 There are six steps involved in applying the work load method. Step 1 : Customer should be classified into sales volume potential category A, B, C, etc. Step 2 : Decide on the length of time per sales call and desired call frequency on each class of customers. Step 3 : Calculate the total work load by multiplying the time taken by one customer into the number of customers. Step 4 : Determine total work time available per person by task. Let the work time available as per the task. Step 5 : Determine total time available per sales person. Step 6 : Calculate total number of sales people needed (N), N = Total work load / work one salesman can do. Work Load Methods

37. 37 Basic requirements of sales promotion 1. Identifying the basic requirement (identify the need of sales promotion as to why this campaign is being undertaken). 2. Identifying the right promotional program. 3. Role of a salesman 4. Role of the dealers 5. Launching and follow up campaign 6. Tuning of the campaign (Seasons, Festivals, New year, or other special events of national and local interest should be kept in mind). 7. Coordination with other elements of promotion