UNIT I.

What is sales

Selling is first and foremost a transaction between the seller and the prospective buyer or buyers
(the target market) where money (or something considered to have monetary value) is exchanged
for goods or services. So the best way to define selling is to focus on the sales skills that are
necessary to make that transaction happen. Defining selling as the art of closing the deal
encapsulates selling's essence.

If you're interested in improving your sales skills, you'll find that there are supposedly many
kinds of selling that you should use or should avoid, such as high-pressure selling, persuasive
selling, no-pressure selling, collaborative selling, etc., but all of them amount to conducting the
same basic exchange in the end.

However...

That being said, there is a huge difference between a basic sales exchange such as buying gas at a
gas station for your car and buying a car.

In the first instance, the exchange is built on simple need. Your car's gas tank is empty; you need
to fill it with gas. There may not be (and probably isn't) even a salesperson involved.

In the second, the exchange is built on manufactured need (created through marketing). You
think you need a new car because you have been persuaded to believe that. Enter the salesperson
to direct and meet your need.

So sales is actually a spectrum and most selling consists of performing the art of persuading the
consumer that buying the product or service will benefit him or her.

Some people excel at directing and persuading; these are the super salespeople that truly are
worth their weight in gold.
How Do You Sell Something?

Whatever product or service you're selling, then, you need to focus your selling efforts on
communicating the benefits of your product or service to the consumer.

The benefits may be tangible or intangible, but unless the individual consumer is convinced that
he or she will personally experience the benefits, your product or service won't sell.

Think about it. Why do women smear color on their eyelids? Did anyone in the entire world ever
actually need a hula hoop? That's the art of selling.

What Makes a Successful Salesperson?

 The ability to build long-term relationships with customers one at a time. Most good
salespeople think long-term and how they can leverage the current sale into more
business in future from the same customer or via referrals.

 The ability to listen and stay in tune with the needs of the customer. Too many
salespeople spend all their time attempting to talk the prospective customer into
purchasing the sale or service in question, without finding out what it is the customer
actually wants. The customer may not be interested in the product you are selling but
he/she may have a need for another product or service that you can fulfill now or in the
future. Learn how to become an active listener.

 Not promising what they can't deliver. Nothing turns off a customer faster than broken
sales promises.

 Tenacity. A good salesperson knows that it may take several attempts to make a sale and
never gives up on a potential customer. Somewhere down the line an email or phone call
reminder might close the deal. A good salesperson also knows where to draw the line
between pursuing a potential sale and pestering the customer.

 Self-motivation and a positive attitude. Successful salespeople have a high level of

initiative and don't need micromanagment. They constantly look for new opportunities
and view setbacks as learning experiences. They hold themselves accountable for their
performance and don't blame others or current economic conditions for lack of success.

 Constantly looking for ways to promote products and services by handing out business
cards and other promotional materials to get the word out. This includes the use of
 emails, website updates, and social media postings so customers can be kept up to date
with the latest product or service offerings via Facebook, LinkedIn, Twitter, and Pinterest.

 Investing in his/her community. Giving back to the community you live in by donating to
charities, sponsoring community groups, and engaging in volunteer activities is not only
good for the soul, it is good for business. Investing where you live increases the
likelihood that customers will return the favor when they have a need for your products
or services.

Also Known As: Sales skills.

Examples: Selling organic food is becoming more and more profitable as more consumers are
willing to pay a premium for the benefit of food that's supposedly "healthier".

Difference in sales and marketing:

Sales and marketing are closely interlinked and are aimed at increasing revenue. As sales and
marketing are closely intertwined, it becomes hard to realise the difference between the two. In
small firms, one cannot come across much difference between sales and marketing. But bigger
firms have made clear distinction between marketing and sales and they have specialised people
handling them independently.

Well, how is that sales and marketing are different? In very simple words, sales can be termed as
a process which focuses or targets on individuals or small groups. Marketing on the other hand
targets a larger group or the general public.

Marketing includes research (identifying needs of the customer), development of products

(producing innovative products) and promoting the product (through advertisements) and create
awareness about the product among the consumers. As such marketing means generating leads or
prospects. Once the product is out in the market, it is the task of the sales person to persuade the
customer to buy the product. Well, sales means converting the leads or prospects into purchases
and orders.

While marketing is aimed at longer terms, sales pertain to shorter goals. Marketing involves a
longer process of building a name for a brand and pursuing the customer to buy it even if they do
not need it. Where as sales only involve a short term process of finding the target consumer.

In concept also, sales and marketing have much difference. Sales only focuses on converting
consumer demand match the products. But marketing targets on meeting the consumer demands.
Marketing can be called as a footboard for sales. It prepares the ground for a sales person to
approach a consumer. Marketing as such is not direct and it uses various methods like
advertising, brand marketing, public relations, direct mails and viral marketing for creating an
awareness of the product. Sales are really interpersonal interactions. Sales involve one-on-one
meetings, networking and calls.

Another difference that is seen between marketing and sales is that the former involves both
micro and macro analysis focussing on strategic intentions. On the other hand, sales pertain to
the challenges and relations with the customer.

Summary

1.Sales target on individuals or small groups. Marketing on the other hand targets a larger group
of the general public.

2.Marketing means generating leads or prospects. sales means converting the leads or prospects
into purchases and orders.

3.Marketing involves a longer process of building a name for a brand and pursuing the customer
to buy it even if they do not need it. Where as sales only involve a short term of finding the target
consumer.

Nature and scope of sales management

Sales management is a business discipline which is focused on the practical application
of sales techniques and the management of a firm's sales operations. It is an important business
function as net sales through the sale of products and services and resulting profit drive most
commercial business. These are also typically the goals and performance indicators of sales
management.
Sales manager is the typical title of someone whose role is sales management. The role typically
involves talent development .

Sales planning
Sales planning involves strategy, setting profit-based sales targets, quotas,
sales forecasting, demand management and the execution of a sales plan.
A sales plan is a strategic document that outlines the business targets, resources and sales
activities. It typically follows the lead of the marketing plan, strategic planning[1][2] and
the business plan with more specific detail on how the objectives can be achieved through the
actual sale of products and services.

Recruitment of sales staff

The three recruitment tasks used in sales management are Job analysis; Job description and Job
qualifications.
Job analysis is performed to specify the certain tasks that a salesperson would be responsible for
on a daily basis. It should identify what activities are deemed as being vital to the success of the
company. Any person associated with the sales organization or the human resources department
could carry out the analysis as well as an outside specialist (Spiro, pp.134). The person that is
responsible for completing a job analysis should have an in-depth comprehension of the daily
activities of the salespeople.
This job analysis is then written in an explicit manner as a job description. The general
information consists of

1. Title of job
2. Organizational relationship
3. Types of products and services sold
4. Types of customers called on
5. Duties and responsibilities related to the job
6. Job demands.

An effective job description will identify compensation plans, size of workload, and the
salespeople’s duties. It is also primarily responsible for hiring tools such as application forms and
psychological tests.
The most difficult part of this process would be the determination of job qualifications. A reason
for this difficulty is because hiring affects a company’s competitive advantage in the market as
well as the amount of revenue.[6] Additionally, there should be a set of hiring attributes that is
associated with each sales job that is within a company. If an individual does not excel in their
assigned territory, it could be due to external factors relating to that person’s environment.
Let it be noted that a company should be careful not to submit to discrimination in regards to
employment. A number of qualifications (ethnic background, age, etc.) can not be used in the
selection process of hiring.
Scope of Sales Management

Even if you have a knack for closing deals or have effective brochures, advertising and website
pages for generating individual sales, that’s often not enough to maximize your profits. Using a
variety of sales management techniques to reach that extra 5 percent to 10 percent of your
potential can mean the difference between keeping your head above water and generating profits
that fund your continued growth and expansion.

Sales management includes more than tracking the business you book and providing support for
your sales team. It starts with helping develop the right products, setting the right prices and
distributing in the right places, and continues with marketing messaging, customer service and
other selling efforts. All of these efforts must be coordinated so one doesn’t interfere any of the
others. Setting plans, monitoring them and tracking results lets you continue to adapt, eliminate
weaknesses and take advantage of opportunities.

Improves Product Development

A sales management program includes having your sales staff keep in close touch with customers
and watching the competition to determine if your product line is as relevant as it can be. Adding
a new product to your line, changing or eliminating features or dropping items from your product
mix can all help you maximize your sales and profits. Conduct regular reviews of what you sell
to make sure you offer the optimal product or service to generate high sales volumes and profit
margins.

Optimizes Distribution

Sales reports not only provide you with information about what’s selling and how much you’re
selling, but where you are making your sales. A sales management program evaluates your
distribution methods and maximizes their use. For example, if your online sales are strong but
your retail volumes are lagging, you might find this is because customers get more information
when they shop online, helping them buy with confidence. To improve retail sales, you might
provide better retailer training, more in-store promotions and change your product packaging.
Better Financial Decisions

Some of your best-selling products, in terms of volume, might provide your lowest profit
margins, causing a burden on your production and administration departments. Detailed sales
reports provide you with information on your overhead and production costs, cost-of-sales
expenses and profit margins. A low-margin item with high sales volumes might provide a nice
profit margin, making it a no-brainer item to keep in your line. If you can eliminate this item,
causing a corresponding increase in higher-margin item sales, you might want to discontinue
selling it. Sales management looks at the profit contribution, opportunity cost and impact of
carrying each product on your operations.

Improves Staff Quality

A sales plan is only as good as the people who use it, and a key part of any sales management
program is recruiting, training and managing sales staff. This includes developing their product
knowledge, coaching them on calls, improving writing and presentation skills and helping them
work their territories effectively.

EMERGING TRENDS IN SALES MANAGEMENT:

To be successful in a changing market environment, it is important that sales managers

understand the importance of emerging trends in the following areas

Global Perspective

Global competition is intensifying. Domestic companies who never thought about foreign
competitors are suddenly finding them in their backyard. This is a challenge which sales
managers and salesperson must take on, they have to improve their personal selling efforts not
only in their countries but also in foreign countries. Selling goods and services in global markets
presents a challenge due to differences in culture, language, needs and requirements.
Technological Revolution

Digital revolution and management information system have greatly increased the capabilities of
consumers and marketing organizations. Consumer today can get information about products,
compare it with other brand, place an order and place an order instantly over the internet. This
has led to a different kind of sales force who collects information about internet users, markets
and prospects of internet buyers. It is mandatory for all companies to have their website now.

To compete effectively, sales person and managers will have to adopt the latest technology.

Customer Relationship Management [CRM]

Combining information technology with relationship marketing has resulted in customer

relationship management. Interestingly, the concept of relationship marketing came about earlier
by bringing quality, customer service and marketing together.

Relationship marketing aims in building long term satisfying relations with

key customersdistributors and suppliers in order to earn and retain their long term preference and
business. CRM enable companies to provide excellent real-time service by focusing on meeting
the individual needs of each valued customer, through the use of CRM software packages.

Sales Force Diversity

The demographic characteristics of sales force is changing and becoming more varied. For
example, more and more women are taking up careers in sales management and selling. Also the
education level of sales people is going up most of them holding a college degree or a post
graduate degree. Sales managers now have to handle a sales force of these varied demographic,
expectations of each and every individual is different and sales manager needs to use different
motivational tools against each one of them.

Team Selling Approach

 The practice of team selling is more widely followed by most companies in recent years. Team
selling approach is used when company wants to build a long term mutually beneficial
relationship with major customers, who have high sales and profitable potential. It is used for
selling a technically complex product or a service to a potential customer. The composition of
team may vary depending upon the customer from top management, technical specialist,
customer service, etc…

Managing Multi-Channels

Multi-channel marketing system occurs when organization uses two or more marketing channels
to target one or more customer segments. Major benefits of multi-channel marketing system are:

1. Lower channel cost

2. Increased market coverage

3. Customized selling

Multi-channel may also lead to conflicts and control problems, as two or more channels may
compete for same customer. A successful sales manager will have to effectively manage conflict
between the channels.

Ethical and Social Issues

Sales managers have ethical and social responsibilities. Sales people face ethical issues such as
bribery, deception (or misleading) and high pressure sales tactics. Today’s sales managers have
no choice but to ensure ethical standards from sales force otherwise they may be out of business
or even land up in legal problems.

Below diagram gives the changing trends in Sales Management

 UNIT B Selling process

Sales forecasting:

Sales Forecasting is the process of estimating what your business’s sales are going to be in the
future. A sales forecast period can be monthly, quarterly, half-annually, or annually.

Sale forecasting is an integral part of business management. Without a solid idea of what your
future sales are going to be, you can’t manage your inventory or your cash flow or plan
for growth. The purpose of sales forecasting is to provide information that you can use to make
intelligent business decisions.

How to Make a Sales Forecast

A sales forecast is an estimate of the quantity of goods and services you can realistically sell over
the forecast period, the cost of the goods and services, and the estimated profit.

Typically this is done by:

 Making a list of the goods and services to be sold

 An estimate of the number of each to be sold
 The unit price of each, and a total (price * #units) and a grand total

Another list is made for the estimated cost of each good or service and a total cost (cost * #units).

Subtracting total cost from the total sales gives an estimated profit for the forecast period.

If your business has a huge number of items in inventory it may be necessary to condense unit
sales/costs into categories.

Sales Forecast Assumptions

There are many factors that can potentially affect sales that should form the basis for your sales
forecast, including:

 The economy and your particular industry - Is the economy slowing? Is the market for
your goods and services growing or declining? Is there more competitionentering the
marketplace? Are you likely to gain or lose any major customers? Your sales forecast
should include an estimate of percentage growth or shrinkage in the market.
  Your products or services - Are you launching any new products or services that
may increase sales, or are sales of your existing products/services declining due to better
products/services or lower prices from competition? Will you be forced to raise prices
due to increased material, labor, or other costs and how might this affect sales?

 Your marketing efforts - Are you embarking on any new marketing campaigns or
spending more or less on advertising? Perhaps bringing a new company websiteonline,
beefing up your email marketing, or branching into social media to increase sales? Are
you hiring additional sales staff or losing your best salesperson?

Sales Forecasting for Existing Businesses

Sales forecasting for an established business is easier than sales forecasting for a new business;
the established business already has a sales forecast baseline of past sales. A business’s sales
revenues from the same month in a previous year, combined with knowledge of general
economic and industry trends, work well for predicting a business’s sales in a particular future
month.

If your business has repeat customers, you can check with them to see if their purchase levels are
likely to continue in future. If you don't wish to contact them directly you can infer future
activity based on the health of the customer industry.

Sales Forecasting for New Businesses

Sales forecasting for a new business is more problematical as there is no baseline of past sales.
The process of preparing a sales forecast for a new business involves researching your target
market, your trading area and your competition and analyzing your research to guesstimate your
future sales.

See Three Methods of Sales Forecasting and Sales Forecasting for Your Business Plan for further
explanation.

Sample 6 Month Sales Forecast

Jan Feb Mar Apr May Jun Total

#Units Sold

Widget 1 10 10 15 15 15 15 80

Widget 2 20 20 25 25 25 25 120

Unit Price $

Widget 1 $50 $50 $50 $50 $50 $50

Widget 2 $35 $35 $35 $35 $35 $35

 Jan Feb Mar Apr May Jun Total

Sales

Widget 1 $500 $500 $750 $750 $750 $750 $4000

Widget 2 $700 $700 $875 $875 $875 $875 $4900

Total Sales $1200 $1200 $1625 $1625 $1625 $1625 $8900

Unit Cost

Widget 1 $25 $25 $25 $25 $25 $25

Widget 2 $30 $30 $30 $30 $30 $30

Total Cost

Widget 1 $250 $250 $375 $375 $375 $375 $2000

Widget 2 $600 $600 $750 $750 $750 $750 $4200

Profit

Widget 1 $250 $250 $375 $375 $375 $375 $2000

Widget 2 $100 $100 $125 $125 $125 $125 $700

Total Profit $350 $350 $500 $500 $500 $500 $2700

Create a Range of Forecasts

It is a good idea to create multiple sales forecasts using a range of predictions, particularly for
new businesses.

After creating an initial forecast using your best estimates create another forecast based on
optimistic numbers and another based on pessimistic ones. Update your forecast with the actual
values as time progresses.

Sales forecasting done on a month by month basis will give you a much more realistic prediction
of how your business will perform than one “lump” sales forecast for the year.

MARKET DEMAND:
Definition: Market demand is the total amount of goods and services that all consumers are
willing and able to purchase at a specific price in a marketplace. In other words, it represents
how much consumers can and will buy from suppliers at a given price level in a market.

What Does Market Demand Mean?

What is the definition of market demand? Many people confuse consumer demand with
consumer desire. These two concepts simply don’t equate. Consumers can desire a product all
they want but simply can’t afford the product. Thus, they will never actually be able to purchase
it.

Economic demand aims to measure the amount of individuals who want to purchase a good and
can afford to purchase the good at a certain price. In other words, demand measures the amount
of product that consumers are willing to purchase and able to purchase at a given price.

Keep in mind that as the price of a good changes, so does the demand. Less people are willing
and able to purchase goods at higher prices; therefore, demand decreases as prices increase.

Economists and business owners use this theory to establish prices for their products.

Let’s look at an example.

Example

Imagine an economist was attempting to determine the demand for a service, but they only had a
few individual demand schedules and functions. Since market demand is the summation of all of
the individuals’ demand curves, the economist would add the functions or the results in
the schedule together.

For example, if the total market size for a product was 3 people and at $30 none would purchase
the product. The aggregate demand would be 0 at that price. Next at $25, the Customer X would
buy 5, Customer Y wouldn’t buy any, and Customer Z would buy 1. At $25, the aggregate
demand would be 6 units. Once this method is used all the way to $0, the sums will be added and
total marketplace demand will be found.

The same could be done using functions. Observing a demand curve and discovering the slope
and the constant will determine the function. Once the functions are found for the 3 customers,
they can be added to find the function of the marketplace demand. An example function is
Customer A (50 -7X). To convert functions to demand schedule points, the economist can replace
the variable with the price at a given point. Whether schedules or functions are used the same
market demand should be found which is a valuable component to the decision-making process.

SALES FORECASTING METHODS:

FORECASTING FUNDAMENTALS

Forecast: A prediction, projection, or estimate of some future activity, event, or occurrence.

Types of Forecasts

- Economic forecasts

o Predict a variety of economic indicators, like money supply, inflation rates, interest rates, etc.

- Technological forecasts

o Predict rates of technological progress and innovation.

- Demand forecasts

o Predict the future demand for a company’s products or services.

Since virtually all the operations management decisions (in both the strategic category and the
tactical category) require as input a good estimate of future demand.

TYPES OF FORECASTING MEHTODS

Qualitative methods: These types of forecasting methods are based on judgments, opinions,
intuition, emotions, or personal experiences and are subjective in nature. They do not rely on any
rigorous mathematical computations.

Quantitative methods: These types of forecasting methods are based on mathematical

(quantitative) models, and are objective in nature. They rely heavily on mathematical
computations.

QUALITATIVE FORECASTING METHODS

Executive Opinion Approach in which a group of managers meet and collectively develop a
forecast

Market Survey Approach that uses interviews and surveys to judge preferences of customer
and to assess demand

Delphi Method Approach in which consensus agreement is reached among a group of experts
Sales Force Composite Approach in which each salesperson estimates sales in his or her region

QUANTITATIVE FORECASTING METHODS

TIME SERIES MODELS MODELS- Look at past pattern of data and attempt to predict the
future based on the underlying patterns contained within those data.

ASSOCIATIVE MODELS- Associative models (often called Causal Models) assume that the
variable being forecasted is related to other variables in the environment. They try to project
based upon those associations.

QUALITATIVE SALES FORECASTING METHODS:

Qualitative methods of sales forecasting rely less on data, and much more on the opinions and
experiences of the people involved in the forecasting process.

If qualitative forecasting is about obtaining opinions about the future, what are the main methods
of getting those opinions?

There are three common approaches:

Delphi method

Perhaps the best-known method for generating a forecast using “experts”. Rather than getting
experts to meet face-to-face, the chosen experts are sent a survey or questionnaire (by post or
email). Each expert completes the survey without reference to any other contributor.

The replies to the survey are analyzed, summarized and then returned back to the experts so that
they can reconsider their responses and views after learning about the views of the other experts.

This survey process may be repeated several times until a consensus is reached (or perhaps a
narrower range of sales forecasts is arrived at).

The obvious disadvantages of this approach are:

- The time-consuming nature of the survey process (potentially costly as well)

- The way in which the “experts” are chosen (who choses and why?)
- Whether some experts are more expert than others! I.e. whose opinions should be given most
weight (if anyone)

Panel method

This method of sales forecasting is a specialised form of focus group (remember that from
consumer market research?)

The panel’s members meet face-to-face and discuss openly their views on the forecasts required,
with the aim of reaching a consensus.

The disadvantages?

- Some experts will shout louder than others, or be more forceful in expressing their opinions
- The panel approach encourages a quick resolution, rather than a more reflective approach
(which might lead to a better quality sales forecast)

Scenario planning

This method is popular where the sales forecast is subject to a lot of uncertainty. This is often
true when a sales forecast is intended to cover a long time period (e.g 3+ years) or where there
are inherent risks in the demand for the product or market being forecasted.

Scenarios are not intended to produce a consensus. Rather, it is about identifying the likely or
possible scenarios for different sales outcomes, and then coming up with a plan for how the
business would respond for the least desirable scenarios. Scenario planning is linked, therefore,
to contingency planning.

EXECUTIVE OPINION METHOD:

OVERVIEW: This technique is part of a set of techniques that are useful in situations where
past data do not exist, causal relationships have not been identified, or some major change has
occured in the forecasting context which is not accounted for by other techniques (such as a Gulf
War, trade agreement, etc.). Evidence as to the validity of using these methods by themselves is
mixed, although using them correctly can provide very good forecasts, especially in uncertain
environments. The objective of these techniques is to provide logical, unbiased, and systematic
quantitative estimates.
BASIC IDEA: Combines input from key information sources.
PROCEDURE: Very simple. Have "forecast meetings", perhaps beginning with initial estimates
of the forecast variables. Discussion ends when consensus is reached.
EXAMPLE: Mainframe computer forecasting is done by conducting a series of meetings
between the two mainframe analysts at a company, the Service director, and a Research
Operations analyst. Typically, three or four meetings are required in order to arrive at a forecast
consensus. In between meetings, the forecasts are examined by colleagues, both domestic and
abroad, for feedback and reaction.
COMMENTS: This approach is used widely because it is relatively quick and uses the solid
understanding of participants who are presumed to have relevant knowledge. However, this
approach is subject to severe judgmental biases that can result in poor forecasts. The next
technique specifically addresses these potential pitfalls.

SALESFORCE COMPOSITE METHOD:

It is a forecasting method used to forecast the sales by adding up individual sales agents forecasts
for sales in their respective sales territories. It is a bottom-up approach which companies use to
forecast more accurately. Sales agents have the most direct interaction with the customers and
provide many valuable insights which help the companies boost their sales.
Using the sales force composite forecast the company not only forecasts for the market as a
whole but it also has numbers for individual areas and territories.
Flipside of using this technique is that the company forecast will only rely on sales agents who
may use too optimistic or too pessimistic approach based on their latest experience. Thus the
company can end up forecasting taking only microeconomic factors and neglect the
macroeconomic environment. Hence the companies usually combine the sales force composite
forecast with the top-down forecast and then finalize the actual forecast.
Another drawback of this technique is that some agents may give a lower forecast than the actual
potential of sales to easily achieve their target and get the money bonus from the company on the
extra sales generated.
Nowadays many companies use scripting software which takes into account the response of the
agents and gives a cumulated forecast based on the programming from the historical data and
previous forecasts.

SURVEY OF BUYERS’ INTENTIONS METHOD:

It is also known as consumers’ expectations or opinions survey. It is commonly used method for
sales forecasting. A sale is the result of consumer intention to buy the product. Many companies
conduct periodical survey of consumers’ buying interest to know when and how much they will
buy.
A sample of potential consumers is surveyed to know how much of the stated product they would
buy at a given price during a specified future time period. Some firms maintains a permanent
sample of buyers known as the panel to collect needed data on a regular basis.
Merits:
This method offers following merits over the rest of methods:
i. More reliable and relevant information can be collected.
ii. This method is more suitable for industrial products.
iii. It is highly effective for short-run sales forecasting.
iv. This method is proved effective when consumers state their intention clearly and adhere to it.
Demerits:
Following are the demerits of the method:
i. It is applicable only for short-run forecasting.
ii. It is expensive method and needs a lot of preparations. Also, it needs a large amount of time.
iii. Consumers may not express their intention clearly, or may not behave as per intention
expressed.
iv. In case of highly scattered large number of consumers, it is not applicable.
v. Poor response rate is the major problem in our country. They do not respond to the questions
asked and/or do not return questionnaire fully completed.
vi. Purchase intention is subject to change as per social and economic circumstances. One cannot
expect consistent intention over time.
vii. Selection of the sample of potential buyers is difficult task as who, how many, and from
which places respondents should be selected. Limitations of sampling become the limitation of
the method.
It is especially more effective when:
(1) There are relatively few buyers,
(2) Buyers are willing to express buying intentions reliably,
(3) Company has enough time and money to spend, and
(4) There is high probability that stated intention would result into actual purchase.

TEST MARKETING METHOD:

It is popularly known as test marketing. It is an experimental method. Opinions are not
considered but the real experiment is made. This is most reliable method. It is based on the actual
study of market situation. In this method, neither buyers are asked to reveal their intention nor
experts are contacted to give their opinion on the future sales, but a direct market test is
conducted. Direct market test is desirable in case of a new product and existing products as well
as existing products in new channel or territory.

The method is used to measure consumers’ and dealers’ reactions in handling, using, and
repurchasing the product. Test marketing can be defined as, an attempt to try the entire marketing
programme in a limited number of well-selected markets, test cities, or different areas.
This help in testing viability of full marketing programme for regional and national market. A
product is launched in a limited scale under normal market conditions to test consumers’
reactions. Thus, test marketing essentially determines purchase interest in real situation.

Test market provides valuable information such as:

(1) Reactions of consumers and dealers,

(2) More reliable demand forecasting,

(3) Measuring market share and size of market, and

(4) Information regarding trial, first time purchase, repeat purchase, and frequency of buying.

Merits:

Following are the merits of market test method:

i. Reactions of consumers and dealers can be obtained.

ii. Information regarding trial, first time purchase, repeat purchase, etc., can help in more
accurate estimate of sales for a given time.

iii. Market testing or test marketing is advisable due to the fact that it is based on real situation.

iv. More reliable estimate of sales can be obtained as it is more practical method.

v. During market test, drawbacks related to product, packaging, price, promotion, and other
aspects on can be identified which can be removed later on.

Demerits:

Following are the problems associated with this method:

i. There are big “ifs”. For example, if price is kept low, what happens? If more promotional
efforts are undertaken, what will be the outcomes?

ii. It is expensive.

iii. It is time consuming.

iv. Danger of artificial response of consumers and competitors may mislead.

v. This method needs a great degree of expertise and experience.

vi. Market test result of one area cannot be equally applied in other areas directly.

vii. It is conducted in a limited scale. So, generalization is always doubtful.

viii. If it is conducted in controlled situation (laboratory experiment), the real position cannot be
measured; and if it is conducted in natural setting (field experiment), impact of extraneous
factors cannot be estimated.

Types of Test Marketing Method

(i). Full-blown test markets,

(ii). Controlled Test Marketing,

(iii). Simulated Test Marketing.

(i). Full-blown test markets,

It consists of the company choosing a few representative cities, in which full promotion
campaign is introduced, similar to what would be done in national marketing. The duration of the
test market varies from a few months to one year, depending on the repurchase period of the new
product. Buyer surveys are carried out to get information about consumer attitude, usage and
satisfaction towards the new product. If the test market shows high trial and repurchase rates, the
product should be launched nationally; if they show a high trial rate and a low repurchase rate,
the new product should be redesigned or dropped; if they show a low trial rate and a high

repurchase rate, the product is acceptable, but more consumers should try it; if both trial and
repurchase rates are low, the new product should be left permanently.

(ii). Controlled Test Marketing- The company with the new product hires a research firm and
gets a panel of stores at specified geographic locations. The research firm delivers the new
product to the panel of stores, arranges promotions at the stores, and measures the sales of the
new product. The research firm also interviews sample consumers to get their perceptions on the
new product. Both full-blown test markets and controlled test marketing expose the new product
to the competitors.

(iii). Simulated Test Marketing.

In this method, about 30-40 consumers (or shoppers) are selected, based on their brand
familiarity and preferences in a particular product category, such as baby care and soft drink
products. These shoppers are shown commercials or print advertisements of well-known
products and also the new product, without any specific mention. These consumers are given a
small amount of money and asked to buy any items in a store. The researcher of the company
notes how many consumers buy the new product and competing products. These consumers are
interviewed to find reasons for buying or not buying, and later, after usage of the new product,
satisfaction levels and repurchase intentions. This method gives accurate results. The new
product in not exposed to the competitors.

For industrial-product market testing, the methods used are alpha testing (testing within the
company), and beta testing (with outside customers) for high cost and new technology products
and services. For example, Infosys sent its banking software product, Finnacle, to the experts for
a thorough check-up to see if it’s fit for the multi-billion dollar US market. The supplier of the
new product/service will ask the customers about their purchase intentions and other information
after the beta testing. Another method used for introducing a new industrial product is
participating in the industry trade-shows.

The main advantages of these methods are: (a) their usefulness for forecasting the sales of new or
modified products, and (b) in deciding whether a company should go ahead for a national launch
of a new product, without spending a huge amount. The disadvantages are: (a) for some of the
methods like full-blown test market and controlled test marketing, where there are possibilities of
the information on new products going to competitors, there are chances of spoilage of the test
marketing, and (b) if repurchase period is long, particularly for consumer durables, it is difficult
for the company to wait to measure test results. In such cases, the company decides to introduce
a new product in a small geographical area and subsequently ‘roll on’ to other areas, in a planned
manner.

QUANTITATIVE SALES FORECASTING METHODS:

MOVING AVERAGE METHOD:

This method uses the Moving Average formula to average the specified number of periods to
project the next period. You should recalculate it often (monthly, or at least quarterly) to reflect
changing demand level.

To forecast demand, this method requires the number of periods best fit plus the number of
periods of sales order history. This method is useful to forecast demand for mature products
without a trend.
3.2.4.1 Example: Method 4: Moving Average

Moving Average (MA) is a popular method for averaging the results of recent sales history to
determine a projection for the short term. The MA forecast method lags behind trends. Forecast
bias and systematic errors occur when the product sales history exhibits strong trend or seasonal
patterns. This method works better for short range forecasts of mature products than for products
that are in the growth or obsolescence stages of the life cycle.

Forecast specifications: n equals the number of periods of sales history to use in the forecast
calculation. For example, specify n = 4 in the processing option to use the most recent four
periods as the basis for the projection into the next time period. A large value for n (such as 12)
requires more sales history. It results in a stable forecast, but is slow to recognize shifts in the
level of sales. Conversely, a small value for n (such as 3) is quicker to respond to shifts in the
level of sales, but the forecast might fluctuate so widely that production cannot respond to the
variations.

Required sales history: n plus the number of time periods that are required for evaluating the
forecast performance (periods of best fit).

This table is history used in the forecast calculation:

Past Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov
Dec

1 None None None None None None None None 131 114 119 137

Calculation of Moving Average, given n = 4

(131 + 114 + 119 + 137) / 4 = 125.25 rounded to 125.

This table is the Moving Average forecast for next year, given n = 4:
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

125 124 126 128 126 126 127 127 126 126 126 126

January forecast equals (131 + 114 + 119 + 137) / 4 = 125.25 rounded to 125.

February forecast equals (114 + 119 + 137 + 125) / 4 = 123.75 rounded to 124.

March forecast equals (119 + 137 + 125 + 124) / 4 = 126.25 rounded to 126.

EXPONENTIAL SMOOTHING METHOD:

This method calculates a smoothed average, which becomes an estimate representing the general
level of sales over the selected historical data periods.

This method requires sales data history for the time period that is represented by the number of
periods best fit plus the number of historical data periods that are specified. The minimum
requirement is two historical data periods. This method is useful to forecast demand when no
linear trend is in the data.

3.2.11.1 Example: Method 11: Exponential Smoothing

This method is similar to Method 10, Linear Smoothing. In Linear Smoothing, the system
assigns weights that decline linearly to the historical data. In Exponential Smoothing, the system
assigns weights that exponentially decay. The equation for Exponential Smoothing forecasting is:

Forecast = α (Previous Actual Sales) + (1 –α) (Previous Forecast)

The forecast is a weighted average of the actual sales from the previous period and the forecast
from the previous period. Alpha is the weight that is applied to the actual sales for the previous
period. (1 – α) is the weight that is applied to the forecast for the previous period. Values for
alpha range from 0 to 1 and usually fall between 0.1 and 0.4. The sum of the weights is 1.00 (α +
(1 – α) = 1).
You should assign a value for the smoothing constant, alpha. If you do not assign a value for the
smoothing constant, the system calculates an assumed value that is based on the number of
periods of sales history that is specified in the processing option.

Forecast specifications:

α equals the smoothing constant that is used to calculate the smoothed average for the general
level or magnitude of sales.

Values for alpha range from 0 to 1.

n equals the range of sales history data to include in the calculations.

Generally, one year of sales history data is sufficient to estimate the general level of sales. For
this example, a small value for n (n = 4) was chosen to reduce the manual calculations that are
required to verify the results. Exponential Smoothing can generate a forecast that is based on as
little as one historical data point.

Minimum required sales history: n plus the number of time periods that are required for
evaluating the forecast performance (periods of best fit).

This table is history used in the forecast calculation:

Past Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov
Dec

1 None None None None None None None None 131 114 119 137

This table is the calculation of Exponential Smoothing, given n = 4, α = 0.3:

Month Calculation

October Smoothed Average* = September Actual

= α (September Actual) + (1 –α) September Smoothed Average

= 1 * (131) + (0) (0) = 131

November Smoothed Average = 0.3 (October Actual) + (1 – 0.3) October Smoothed

Average

= 0.3 (114) + 0.7 (131) = 125.9 rounded to 126

December Smoothed Average= 0.3 (November Actual) + 0.7 (November Smoothed Average)

= 0.3 (119) + 0.7 (126) = 123.9 or 124

January Forecast = 0.3 (December Actual) + 0.7 (December Smoothed Average)

= 0.3 (137) + 0.7 (124) = 127.9 or 128

February Forecast = January Forecast

March Forecast = January Forecast

* Exponential Smoothing is initialized by setting the first smoothed average equal to the first
specified actual sales data point. In effect, α = 1.0 for the first iteration. For subsequent
calculations, alpha is set to the value that is specified in the processing option.

This table is the Exponential Smoothing forecast for next year, given α = 0.3, n = 4:

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
128 128 128 128 128 128 128 128 128 128 128 128

DECOMPOSITION METHOD:

Decomposition is a forecasting technique that separates or decomposes historical data into

different components and uses them to create a forecast that is more accurate than a simple trend
line. By forecasting each component separately before combining them, you can assess the
importance of each and emphasize or discount them according to changing market or economic
conditions.

The decomposition approach to forecasting recognizes that a forecast cannot be completed unless
you include all components of historical data. Although the components may vary, depending on
what variable you are forecasting, you might include a long-term underlying trend line, a cyclical
variation such as a business cycle, which would fluctuate around the trend, and a seasonal
variable, which could be based on weather or holiday consumer activity. Depending on the
variable you are attempting to forecast, you could even include a weekly variable.

Decomposing Historical Data

To illustrate how decomposition forecasting works, consider projecting retail sales as an

example. For simplification, assume the only variable applied to the long-term trend is a seasonal
component. You can create the trend line using regression analysis. To determine the seasonal
component, using your historical data, divide the actual value of sales by the trend value at that
point. After you complete this for all of your historical data sets, you can compute an average for
each of the four seasons to derive seasonal factors. To project sales for the fourth quarter,
multiply the projected trend value for that future quarter by the seasonal factor. The projection
you compute with this method is more accurate than using the trend line alone.

Expanding the Model

The formula for forecasting sales is R = ST, in which "R" equals sales revenue, "S" equals the
seasonal component and "T" is the underlying trend line. The model can be expanded to include
other components, such as a cyclical component. Obviously, the more components, the more
difficult the computations, and that is when a program such as Excel comes in handy. As with all
forecasting models, it is up to you to interpret and explain the significance of the data you use.

REGRESSION ANALYSIS METHOD:

It can be highly beneficial for companies to develop a forecast of the future values of some
important metrics, such as demand for its product or variables that describe the economic
climate. There are several different methods of making forecasts, but they all fall into two
categories: causal methods and time-series methods. Linear regression is a time-series method
that uses basic statistics to project future values for a target variable.

The two main categories of forecasting take very different approaches. Causal forecasting
attempts to predict a variable by trying to explain what factors cause it to change. For example, a
causal model to predict market demand for a product might use the product's price, competitors'
prices and the amount of money spent on advertising to explain what product demand might be
six months in the future. Causal forecasting can be insightful, and is useful to illustrate "what if"
scenarios, but the models are more difficult to devise and implement than time-series models.
Linear Regression Approach

Linear regression can be used in both types of forecasting methods. In the case of causal
methods, the causal model may consist of a linear regression with several explanatory variables.
This method is useful when there is no time component. For example, a company might want to
forecast when a material will melt under different conditions of temperature and pressure. For
time-series analysis, it is possible to develop a linear regression model that simply fits a line to
the variable's historical performance and extrapolates that into the future. This is unable to
account for seasonality or other cycles, as well as nonlinearity, but if the variable in question is
plausibly linear, using linear regression to forecast it might yield a useful prediction.
Using Linear Regression

Because much economic data has cycles, multiple trends and non-linearity, simple linear
regression is often inappropriate for time-series work. On the other hand, linear regression and
related statistical approaches are useful for causal models due to their ability to take into account
several different factors and evaluate the impact of each one. The proper use of linear regression
depends on the data and the goals of the forecaster.

NAÏVE/RATIO METHOD:

Naïve or ratio method is a time series method of forecasting, which is based on the assumption
that what happened in the immediate past will continue to happen in the immediate future. The
simple formula used is as follows:

Sales forecast for the next year= Actual sales of this year x Actual sales of this year/Actual sales
of last year.

The advantages of the method are: (a) Simple to calculate, (b) Requires less data, and (c)
Accuracy is good for short-term forecast. However the method also has certain disadvantages
such as: (a) it cannot be used for forecasting sales for long term periods and new products and (b)
accuracy of sales forecast would be less, if past sales fluctuate considerably.

RECRUITMENT AND SELECTION OF SALES FORCE

The recruitment of salesperson shall start with the task of determining the number of
people to be inducted into the organization.

The number of salespersons required will depend upon such factors as the number of
customers (existing and potential), the number of times the customers need to be
contacted and the time required, etc. It is important that the organization has the right
number of salespersons. The number shall neither be more nor less.

The next step is to specify the authority and responsibility associated with the
salesperson’s job. This is what is known as job description. The functions to be
performed by the salespersons will have to be specified.

As the third step, the requirements of the job should be made clear. That is, the
qualification necessary to carry out the job has to be prescribed. This is what is known
as job specification. The qualification for different categories of salespersons, i.e., indoor
salespersons, service salespersons, traveling salespersons, etc., will have to be
determined.

Recruitment of Sales Force-

This stage includes:

a. Finding and identifying the sources of sales recruits.

b. Evaluating and selecting the recruiting sources.

c. Contacting candidates through the selected source.

Recruiting includes activities to get individuals who will apply for the job. The general
purpose of recruiting is to provide a pool of job candidates from where a company selects
the right persons. This means recruitment activities do not include the selection of people.
If a company wants to recruit a large number of sales people, recruiting and selection
processes should be done continuously. To maximize the chances of finding the right
person, some companies take two specific actions: (i) for selecting one right sales person,
they get 20 applicants, and (ii) they offer the benefits that sales recruits want. Sales
managers and human resource executives should update their information on government
employment regulations on continuous basis. For example, “Equal Pay Act of 1963”,
“Equal Employment Opportunities Act of 1972 in USA”, “Sales Promotion employees
(Condition of Service) Act of 1986”, and “Equal Remuneration Act of 1976 in India”.

(a). Finding and identifying the sources of sales recruits.

For identifying and or locating prospective candidates, companies use internal and
external sources. Internal recruitment sources come from within the company. They
include (i) Employee referral programmes, (ii) current employees, and (iii) Promotions
and transfers. The external sources of recruitment include (i) advertisements, (ii) the
internet, (iii) educational institutions, (iv) employment agencies, (v) other companies
(competitors, customers), non-competitors, and (vi) job fairs.

Internal Sources
(i). Employee Referral Programmes: basically a referral is a recommendation (or the
action of referring) by one individual that another person be hired for a position. The
employee referral programme includes the company employees referring or
recommending known persons for hiring for sales positions. This is now one of the most
popular methods of locating sales recruits because it is very effective, relatively quick
and less expensive compared to other recruiting methods like advertising and
employment agencies. In the employee referral scheme, many companies have incentive
schemes to give necessary rewards to employees who provide successful referrals. The
successful referral means the person referred is hired and meets initial performance goals.
Talent crunch across the sector is prompting both MNCs (Multi-National Companies) and
Indian companies to turn to their employees to fill in vacancies in the mid-managerial
posts, for a price. Existing sales people and purchase executives within the company are
good sources for referral programmes in identifying prospective sales candidates. The
major disadvantages of using the employee referral scheme is that the company may not
get enough of them and therefore, the company uses other sources as well.

(ii). Current Employees : This is a source of job applicants in two ways: (a) current
employees can recommend friends and relatives to the company, and (b) they can also be
applicants by applying for the sales job. Many organizations like to recruit within their
own companies because of two reasons: (a) the cost of recruitment is less, and (b) it
improve employee morale.

(iii) Promotions and Transfers: Internal promotions and transfers generally result
after the company announces sales job openings through newsletters, in meetings, or on
the bulletin boards. One study found that employees of the company who were internally
transferred to the sales positions gave more long-term profits than salespersons from any
othe source.

EXTERNAL SOURCES
(i). Advertisements: By advertising in newspapers and trade journals for sales jobs, a
company can produce a large pool of applicants in a short time. Advertising is generally
less expensive on a cost-per-applicant basis. However, a large number of applicants may
not be qualified for the job, due to below average quality of many applicants.

A company can be more selective by advertising in trade publications instead of a daily

newspaper. However, in case of trade magazines, lead time to place an advertisement in
the next issue is much longer (typically 6 to 8 weeks) than with newspapers. To ensure an
advertisement’s effectiveness, the following points are usefurl:
  Add restrictions (like bachelor’s degree) to avoid receiving too many unqualified
applicants.

 Advertise on Sunday for a classified advertisement.

 When speed of response is important, use classified newspaper advertising.

 Use business publications for recruiting persons with business experience.

 Focus on prospective candidates’ needs and interests, instead of the company

information.

Use the advertisement as an unique sales proposal to motivate

candidates to reply.

A recruitment advertisement must attract attention and have

credibility.

Provide phone and fax numbers and mailing address.

Answer enquiries immediately before they cool off.

(ii) The Internet: Many companies use their own websites to approach the applicants for
various positions including sales. The advantage of this web-based recruiting is very low
cost of getting applicants resumes. However the company has to bear the cost of
screening the large number of resumes to find the applicants who qualify for the sale
position. Many companies use the internet recruiting websites, such as
www.naukari.com, www.jobsearch.com, and www.jobsahead.com. As a large number of
job seekers accessing the internet are college students, advertising on bulletin boards or in
job banks will help reaching the college market.

(iii). Educational Institutions- Large companies use colleges and universities as a

popular source for sales recruits. Small firms are less likely to recruit in college campuses
because many graduates prefer large and well known companies, who have extensive
training programmes and company benefits. Large companies not only find educational
institutions as a cost effective source, but also that the college students can be hired at
lower salaries than experienced sales persons.

(iv). Employment Agencies- A commonly used source is the private employment

agencies. They usually work from a job description provided by the sales manager and
can be asked to do initial screening of candidates based on specific job qualifications.
These agencies charge fees, usually ranging from 10 to 20 percent of the first year
earning of the person hired thorough the agency. The employer’s cost for the employment
agency’s fees is offset by the savings in the advertising and initial screening tasks done by
the agency.

(v) Other Companies ( competitors, customers, non-competitors)- A sales person

recruited from a competitor knows the product and markets well, has selling experience,
and requires little training. However it may be difficult for such a salesperson to make
adjustments to the new organization. Besides, some sales managers consider the practice
of hiring the competitor’s salesperson as unethical.

Customers’ purchase executives have some knowledge of the abilities of salespeople who
call on them. However, hiring the good employee of a customer has disadvantages and
this should be done, if it is a must, tactfully without losing the customer.

Salespeople working for non-competing firms are another source, id they are selling
similar or related products or selling to the same markets. These salespersons have selling
experience and need relatively less training.

(vi) Job Fairs- Many employers are brought at one location for recruiting with the
arrangements of job fairs. Candidates visit the booths of the employers they are interested
in. The employer may also ask a particular candidate for a meeting, based on the
candidate’s resume received earlier. Generally job fairs are held in the evening hours or
on Sundays, so that presently employed sales people can attend them. This problem will
not arise for virtual job fairs on the internet.

(b). Evaluating the Recruiting Sources- the recruiting source is evaluated based on
it’s past performance data with respect to hiring through it, retention of the staff
sent through it and the cost involved in hiring through it.