MODULE 5 : ORGANISING THE SALES EFFORT

Horizontal Organisation : is concerned with how specific selling activities are divided
among various members of the salesforce.

Vertical Organisation : refers to organizing a firm’s sales managers and their activities
rather than the personnel in the salesforce.

Purposes of Sales Organisation

An organizational structure is simply an arrangement of activities involving a group of
people. It should serve the following purposes :
- Activities should be divided and arranged in such a way that the firm can
benefit form the specialization of labour.
- The organizational structures should provide for stability and continuity in the
firm’s selling efforts
- The structure should provide for the coordination of bthe various activities
assigned to different persons in the salesforce and different departments in the
firm.

Division and Specialisation of Labour

Division and specialization of labour increase productivity because each specialistcan
concentrate efforts and become more proficient at the assigned task. Also, management
can assign individuals only to those activities for which they have aptitude. Management
must decide the best way to divide the required selling activities to gain the maximum
benefits of specialization within the sales force.

In a simple “line” form of verftical organization in which the chain of command runs
from the chief sales executive down through levels of subordinates. Each subordinate is
responsible to only one person on the next higher level, and each is expected to perform
all the necessary sales managemen t activities relevant to her own level.

The most common form of vertical organisation structure – especially in medium- and
large-sized firms – is the line and staff organization. In this form, several sales
management activities – such as personnel selection, training and distributor relations are
assigned to separate staff specialists. The problem is determining what specific functions
should be assigned to staff executives, how can staff activities be integrated with those of
line sales managers, an d should those activities be performed “in-house” or outsourced
to independent contractors, such as personal agencies and training firms?

Stability and Continuity of Organizational Performance

Activities should be assigned to positions within the sales organization without regard to
the talents and preferences of current employees. Once an ideal organizational structure
has been designed, people can be trained or, if need be, recruited to fill positions within
the structure. The organization should build depth at all positions in order to provide
stability and continuity of performance within the organization.
Coordination and Integration
When activities are divided and performed by different individuals, those activities must
be coordinated and integrated so all efforts are directed at accomplishing the same
objective.

First, the activities of the sales force must be integrated with the needs and concerns of
the customers. Second, the firm’s selling activities must be coordinated with those of
other departments, such as production, product development, logistics and finance.
Finally, if the firm divides its selling tasks among specialized units within the sales force,
all those tasks must be integrated.

Consequently, the primary function of the vertical structure of a firm’s sales organization
is to ensure these three kinds of integration.

HORIZONTAL STRUCTURE OF THE SALES FORCE

A firm has two alternatives : it could either hire its own salespeople or use outside agents.
When a company salesforce is used, alternative approaches include :
(i) Geographic organization
(ii) Organisation by type of product
(iii) Organisation by type of customer
(iv) Organisation by selling function

Four most prevalent changes in sales organizations are :

- More specialization of selling resources
- More value added resources in field
- Smaller customers to be covered by telemarketing
- Smaller customers to be covered by agents/distributors

Types of Agents
(i) Manufacturer’s Representatives
(ii) Sales Agents

Manufacturer’s Representatives are intermediaries who sell part of their output to

principals – the manufacturers they represent – on an extended contract basis – they
neither take ownership nor physical possession of the goods they sell, but concentrate
instead on the selling function. They are compensated solely by commissions.

They have no authority to modify their principals’ instructions concerning the price,
terms of sale, and so forth to be offered to potential buyers. They cover a specific and
limited territory and specialise in a limited range of products, although they represent
several related but noncompeting product lines from different manufacturers.

These characteristics give the reps the advantage of having :

- many established contact with potential customers in their territories
- familiarity with the technical nature and applications of the types if products in
which they specialize
- the ability to keep expenses low by being able to spread fixed costs over the
products of several different manufacturers
- the appearance as a totally variable cost item on their principals’ income
statements, since the reps’ commissions vary directly with the amount of goods
sold

Selling Agents are also intermediaries who do not take title to or possession of the goods
they sell and are compensated solely by commissions from their principals. They differ
from the reps in that they usually handle the entire output of a principal (operating as the
entire sales force for the manufacturer rather than as a representative in a single, specified
territory). They are usually granted broader authority by their principals to modify prices
and terms of sale, and they actively shape the manufacturer’s promotional and sale
sprogrammes.

Deciding when outside agents are appropriate

Two sets of factors to be considered are :
(i) Economic criteria
(ii) Control and strategic criteria

Economic Criteria
The fixed costs of using sales agents are lower than those of using a company sales force
because there is usually less administrative overhead and agents do not receive a salary or
reimbursement for field selling expenses. But costs of using agents tend to rise faster as
sales volume increases because agents usually receive larger commissions than company
sales people. Consequently, there is a break-even sales volume below which the costs of
the external agents are lower but above which a company sales force becomes more
efficient. This is why agents are used by smaller firms or by larger firms in their smaller
territories where sales volume is too low to warrant a company sales force.

Low fixed costs also make agents attractive when a firm is moving into new territories or
product lines where success is uncertain. Since agents do not get paid till sales are made,
the costs of failure are minimised.

Another important economic criteria is sales volume. Most sales and marketing managers
believe that company salespeople are likely to produce a higher volume of total sales as
they will concentrate entirely on the firm’s products, they may be better trained, they may
be more aggressive since their future depends more on the company’s success, and
customers often prefer to deal directly with a supplier. On the contrary, agents’ contacts
and experience in an industry can make them more effective than salespeople –
particularly when the company is new or is moving into a new geographic area or product
line.

Control and Strategic Criteria

Most managers believe that an internal sales force is preferable to agents in the long run
because of the difficulty of controlling agents and getting them to conform to their
principals strategic objectives. Agents are seen as independant actors who can be
expected to pursue their own short-run objectives. This may make them reluctant to
engage in activities with a long-run strategic payoff to their principal, such as cultivating
new accounts or small customers with growth potential, performing service and support
activities, or promoting new products. Manufacturer’s reps are more dissatisfied with
close supervision and attempts to control their behaviour than are company salespeople.

Managers can control the company’s sales force in a number of different ways like :
selection, training, supervision of personnel, establishment of operating procedures and
policies; formal evaluation and reward mechanisms; ultimately transferring or firing
salespeople whose performance is not satisfactory.

Independent agents can also be replaced if their performance falls below the
manufacturer’s expectations – however, it is difficult for the manufacturer to ascertain the
reason of the rep’s poor performance because of the difficulty in moitoring their
performance.

Finally, switching costs, such as contractual restrictions on termination or customer

loyalty to the agent, may make it difficult for a manufacturer to replace an agent with its
own salespeople.

Transaction Costs
When an intermediary must invest in specialised transaction-specific assets, such as
extensive product training or specialised capital equipment, to sell the manufacturer’s
product or service effectively, the transaction costs of replacing an agent are high.

The theory of Transaction Cost Analysis states that when substantial transaction-
specific assets are necessary to sell a manufacturer’s product, the cost of using and
administering independent agents are likely to be higher than the costs of hiring and
managing a company sales force. This is because TCA assumes that independent agents
will pursue their own self-interests even at the expense of the manufacturer they represent
– when they think they can get away with it. However, recent researchers believe that
when both the manufacturer and the agent believe their relationship can be mutually
beneficial for years, norms of trust and cooperation can develop.

Strategic Flexibility
Generally, a vertically integrated distribution system incorporating a company sales force
is the most difficult to alter quickly. Specialised agent intermediaries can often be added
or dismissed at short notice, especially if no specialised assets are needed to sell the
manufacturer’s product and the firm does not have to sign long term contracts to gain
agents’ support.

Firms facing uncertain and rapidly changing competitive or market environments or those
in industries characterized by shifting technology and short product life cycles are often
best advised to rely on independent agents to preserve the flexibility of their distribution
channels.
It is generally advisable to use agents in volatile environments, to represent a small
company, or for territories with low sales potential, where the benefits form scale
economies outweigh the difficulties of motivating and controlling the agent’s behaviour.
It is preferable to switch to direct salespeople as soon as a company or territory can
support the higher fixed costs or when specialised knowledge or other assets are required
to do an effective job.

Geographic Organization
This involves assigning individual salespeople to separate geographic territories. Each
salesperson is responsible for performing all the activities necessary to sell all the
products in the company’s line to all potential customers in a territory.

Advantages
- Lower cost : As there is only one salesperson in each territory and territories tend
to be smaller than they are under other forms of organisation, travel time and
expenses are minimised. Fewer managerial levels are required for co-ordination.
Thus, sales administration and overhead expenses are kept relatively low.
- Simplicity : leads to better relationships between the firm and its customers. As
only one salesperson calls on each customer, there is no confusion about who is
responsible for what or about to whom the customer should talk when problems
arise.

Disadvantages
- It does not provide any benefits of division and specialisation of labour.
- This structure provides the individual salesperson with freedom to make decisions
concerning which selling functions to perform, what products to emphasize, and
on which customers to concentrate. Unfortunately, salespeople are likely to
expend most of this effort on the functions they perceive to be most rewarding,
whether or not such effort is consistent with management’s objectives and
account management policies. Thus, despite the presence of management
supervision, the sales rep – rather than management – can control the way that
selling effort is allocated across products, customers and selling tasks.

Large organisations commonly use geographic organisation in conjunction with other

organisational forms.

Product Organisation
Some companies have separate sales forces for each product or product category in their
line.

Advantages
- Individual sales people can develop familiarity with the technical attributes,
applications, and the most effective selling methods associated with a single
product or related products.
- When a firm’s manufacturing facilities are organised by product type, a product-
oriented organisation can lead to closer co-operation between sales and
 production. This is specially beneficial when the product is tailored to fir the
specifications of different customers or when production and delivery schedules
are critical in gaining and keeping a customer.
- It enables management to control the allocation of resources and the selling effort
across the various products in the company’s line.

Disadvantages
- Duplication of effort : This leads to higher selling expenses
- Creates a greater need for co-ordination across the various product divisions,
which in turn, requires more sales management personnel and higher
administrative costs
- Can also cause confusion and frustration among the firm’s customers when they
must deal with two or more representatives form the same supplier.

This form of sales organisation is commonly used by firms with large and diverse product
lines. It is also used by manufacturers of highly technical products that require different
kinds of technical expertise or different selling methods.

Organisation by Customers or Markets

Organising a salesforce by customer type is a natural extension of the marketing concept
and a strategy of market segmentation.

Advantages
- When sales people specialise in calling on a perticular type of customer, they gain
a better understanding of such customers’ needs and requirements. They can also
be trained to use different selling approaches for different markets and to
implement specialised marketing and promotional programmes.
- As salespeople become more familiar with their customer’s specific businesses
and needs, they are more likely to discover ideas for new products and marketing
approaches that will appeal to the customers.
- This structure allows marketing managers to control the allocation of selling
effort to different markets by varying the sizes of their specialised sales forces.

Disadvantages
- Duplication of effort leading to higher selling expenses and administrative costs.
- Confusion and frustration among customers when they have more than one
salesperson from the same company calling on them.

This form of organisation is particularly popular with products that have widely different
applications in different markets or firms that must use different approaches when selling
to different types of customers. It is alos useful when a firm’s marketing objectives
include the penetration of previously untapped markets.
Organisation by the Selling Function – Functional Organisation
This organisation has the different salesforces for different selling activities eg. Have one
salesforce specialise in prospecting for and developing new accounts, while a second
force maintains and services old customers.

Advantages

Disadvantages
- Difficulty in implementation : As the firm is most likely to assign the most
experienced and flashiest salespeople to the new accounts sales force, new
customers might object to being turned over from a salesperson who won their
patronage to a maintenance salesperson with a personality better suited for
mundane tasks.
- It can also be difficult for the management to coordinate the development and
management functions because there are likely to be feelings of rivalry and
jealousy between the two salesforces.

Another form of functional specialisation, however, is commonly and successfully used

by many industrial product firms : “developmental salespeople” who are responsible for
assisting in the development and early sales of new products. They usually conduct
market research, assist in the firm’s research and development and early sales of new
products as they are developed.

Telemarketing and the Organisation of “Inside” and “Outside” Sales Forces

Telemarketing has proven useful for carrying out selected sales activities like :
- Prospecting for and qualifying new accounts, which can then be turned over to
field sales people for personal contact.
- Servicing existing accounts quickly when unexpected problems arise.
- Seeking repeat purchases from existing accounts that cannot be covered
efficiently in person
- Gaining quicker communication of newsworthy developments

Reasons for the growing popularity of Telemarketing

- Customers like it (prefernce for sales contacts over the phone – particularly for
routine purposes in order to save time)
- It can increase the productivity of a firm’s sales efforts.

From the seller’s point of view, a combination of inside and outside salespeople –
together with an appropriate mix of other media, such as targeted advertising, direct mail,
toll-free numbers and a home page on the Internet offer a way of improving the overall
efficiency of the sales force.

The efficiency of telemarketing makes it particularly useful for implementing as account

management policy that directs different amounts of effort toward classifications of
customers based on differences in size or potential.
ORGANISING TO SERVICE NATIONAL AND KEY ACCOUNTS
Major or key account management policies stress the dual goals of making sales and
developing long-term relationships with major customers, thereby enabling the seller to
capture a larger share of the purchases made by those customers and to improve
profitability.

The disadvantage is that major accounts often require more detailed and sophisticated
treatment than smaller customers. Consequently, servicing such accounts requires more
experience, expertise and organisational authority than the average salesperson possesses.
There can also be difficulty in regards to which sales person gets commissions for sales
to national accounts when one person calls on a customer’s headquarters while others
service its stores or plants in other territories.

In order to remove these difficulties, many firms have adopted special organisational
arrangements for the major account management function, like
- assigning key accounts to top sales executives
- creating a separate corporate division
- creating a separate major accounts sales force.

Assigning key accounts to sales executives

The use of sales and marketing executives to call on the firm’s national or key accounts is
common among smaller firms that do not have the resources to support a separate
division or sales force. It is also common when the firm has relatively few major accounts
to be services.

In addition to being low cost in approach, it has the advantage of having important
customers serviced by people who are high enough in the organisational hierarchy to
make or at least to influence decisions concerning the allocation of production capacity,
inventory levels, and prices. Consequently, they cam provide flexible and responsive
service.

However, the disadvantage of this approach is that managers who are given key account
responsibilties may sometimes allocate too much of the firm’s resources to their own
accounts to the determinant of smaller, but still profitable customers. Thus, they may
become obsessed with getting all the business they can from their large customers
without paying sufficient attention to the sales, operating or profit impact.

Another disadvantage is that assigning important selling tasks to managers takes away
their management activities and can thus hinder the coordination and effectiveness of the
firm’s overall selling and marketing efforts.

A separate Key account Division

This approach allows for close coordination of manufacturing, logistics, marketing and
sales activities and can be important when one or a few major customers account for such
a large proportion of the firm’s total sales volume that variations in their purchases have a
major impact on the firm’s production schedules, inventories and allocation of resources.

The disadvantages of this approach are the duplication of effort and the additional
expense involved in creating an entire manufacturing and marketing organisation for only
one or a few customers. It is also risky because the success or failure of an entire division
is dependant on the whims of one or a few customers.

A separate Sales Force for Major Accounts

Rather than creating an entire separate division to deal with major customers, it is more
common for companies to create a separate national or key accounts sales force.

The national account force and the regular sales force are treated as equal headquarter
units reporting to a single sales and marketing executive who is responsible for
coordinating their efforts.
The most popular organisational approach is to treat major account executives as equal to
regional managers in the regular sales force and have both groups report to the top
executive.

In some companies, account managers perform all necessary selling activities themselves,
including in-store or in-plant servicing of the account. In others, account managers
coordinate an entire selling team of assistants who work on the account. In still other
situations, the national account manager calls on the customer’s headquarters, while field
sales people from the regular sales force service the customer’s facilities in their
territories.

Under this arrangement, if the field sales people are compensated by commission, they
are usually given some portion – perhaps half – of their normal commission of sales
made to a national account’s local stores or plants.

Advantages of a separate sales force for major accounts :

- By concentrating on only one or a few major customers, the account manager can
become very familiar with each customer’s problems and needs and can devote
the time necessary to provide a high level of service to each customer.
- The firm can select its most competent and experienced salespeople to become
members of the national account salesforce, thus ensuring important customers to
receive expert sales attention.
- It provides an internal benefit to the selling company – as only the most
competent salespeople are assigned to national accounts, such an assignment is
viewed as a desirable promotion. Thus, promotion to the national accounts sales
force can be used to motivate and reward top salespeople who are either not suited
for or not interested in moving into sales management.

Disadvantages
- Duplication of effort within the sales organisation resulting in higher selling and
administration expenses.
Team Selling
Often major account teams include representatives from a number of functional
departments within the firm, such as R&D, operations and finance to address the
concerns of the different people in their customers’ buying centres.

One disadvantage of the team selling approach is its high cost in time and personnel. In
an attempt to improve efficiency, therefore, some companies have opened special sites
for team sales meetings.

Team selling can also present some coordination, motivation and compensation
problems.

Team selling is most appropriate for the very largest customers, where the potential
purchase represents enough dollars and involves enough functions to justify the high
costs. Team selling may also be sometimes used with lower level personnel for
maintenance accounts.

Multilevel Selling
Multilevel selling is a variation of team selling. Here, the sales team consists of personnel
from various managerial levels who call on their counterparts in the buying organisation.

This approach presents proper organisational etiquette – each member of the selling team
calls on a person with corresponding status and authority. It is useful for higher level
executives to participate in opening a relationship with a major new prospect, since they
have the authority to make concessions and establish policies necessary to win and
maintain that prospect as a customer.

Co-marketing Alliances
In some industries, the component is made up of components manufactured by two or
more different suppliers or where suppliers rely on independent intermediaries such as
Value added resellers to combine their components with those from other suppliers to
create a system to meet the needs of a particular end user, individual suppliers are
forming alliances and developing joint marketing and sales programmes to sell integrated
systems directly to the ultimate customer.

Logistical alliances and computerised reordering

This involves the debelopment of computerised reordering networks. Such systems
enable customers to place an order directly - and often automatically – via a dedicated
telephone or satellite link to a supplier’s computer.Such paperless exchanges reduce
mistakes and billbacks, minimise inventory levels, decrease out-of-stocks and improve
cash flow.

From the customer’s point of view, computerised reordeing is more convenient, less
time-consuming and more flexible than placing orders through a sales person. From the
supplier’s perspective, linking major customers to a dedicated reorder system can help
“tie” those customers to the firm and increase the proportion of purchases they make
from a single source.

Organising to service the global markets

In case of global markets, agents are used somewhat more frequently in developing
markets than in more developed countries and in markets where the firm’s sales volume
is relatively small.

Firms selling complex, high-tech products are significantly more likely to rely solely on
their own salespeople than firms in other industrial or consumer goods industries.

Horizontal structure of Subsidiary sales forces

Subsidiaries are more likely to employ specialised structures when they are selling
relatively complex products, when their product lines are broad, when they are
operatingin highly developed markets, and when their sales volumes are relatively large.

VERTICAL STRUCTURE OF THE SALES ORGANISATION

The vertical structure defines clearly what managerial positions have the authority for
carrying out specific sales management activities and provides for the effective
integration and coordination of selling efforts throughout the firm.

The Integration of Sales & Marketing

Many organisations do not assign responsibility for all their marketing activities to a
single unit. They may treat sales as a separate function or have separate advertising, or
corporate communications department.

Number of Management levels and Spans of Control

- How many levels should there be?
- How many sales people should each manager supervise?

For a given number of salespeople, the greater the span of control, the fewer the levels of
management, and the fewer the managers needed.

The flat organisation with greater spans of control has lower administrative costs because
of the relatively small number of managers involved. However, others feel that such cost
savings are an illusion because the lower quantity and quality of management can lead to
less effectiveness and productivity.

It is argued that a flat organisation facilitates communication and more direct control.
However, another point of view is that organisations actually limit communication and
control because they necessitate large spans of control.

General guidelines w.r.t. span of control

Span of control should be smaller and the number of levels should be larger when :
(i) the sales task is complex
(ii) the profit impact of each salesperson’s performance is high
(iii) the salespeople in the organisation are well-paid and professional.

Thus, the more important and difficult the sales job, the greater the management support
and supervision that should be provided to the members of the salesforce.

Industries characterised by relatively complex or customised products or services have

smaller average spans of control than industries whose products are more standardised or
commodity-like, such as chemicals and utilities.

The span of control should be smaller at higher levels in the sales organisation because
top-level managers should have more time for analysis and decision making. Also, the
people who report them typically have more complicated jobs and require more
organisational support and communications than persons in lower-level jobs.

Management Roles and Staff Support

- how much authority should each manager be given in managing subordinates?

As a general rule, the more important s decision is for the success of the firm, the higher
the level of management that should make the decision.

Selling Responsibilities
Sales managers are often allowed to continue servicing at least a few of their largest
customers after they join the ranks of management.

Some firms rely on their sales managers for selling and sevicing key accounts. Sales
managers prefer this arrangement because they are reluctant to give up the opportunities
for commissions and direct contact with the marketplace that they gain by being actively
involved in direct selling.

Some firms limit the amount of actual selling in which managers can engage to ensure
that they do not spend too much time selling and not enough time in managing their
subordinates.

How sales managers spend their time?

Account service co-ordination 17%
Internal meetings 14%
Travel 15%
Face-to-face selling 17%
Phone selling 12%
Administration 24%

Sales-related Functions
Order processing and expediting are the least visible but most important sales-related
functions.
Repair and engineering services tend to be responsible to the sales organisation in some
firms and to the manufacturing or operations department in others.

In firms where sales-related functions do not report directly to the sales organisations,
team selling is often a useful means of coordinating such functions – at least when
dealing with major customers where the cost of such an approach is justified.

The Impact of New technologies

Needs and skills that sales managers need to develop to assure a role in the future of
their organisation :
(i) build your book of business : the more you know about your customers, the closer
your relationship with them, the more valuable you will be to your present
company and any future employer.
(ii) Learn to work in teams
(iii) Learn to treat salespeople as equals
(iv) Learn marketing skills
(v) Learn new people-driving skills
(vi) Be a consultant

Staff Support and Outsourcing

The most common functions performed by staff specialists in a sales organisation are
recruitment, training and sales analysis. The creative use of staff specialists can enable a
sales force to function with fewer managers because of the benefits of specialisation and
division of labour. It can also improve the effectiveness of the sales organisation while
cutting costs. Staff positions can be used as a training ground for future top-level sales
managers.

Staff positions are justified only when the sales organisation is large enough so staff
specialists have enough work to keep them busy.

Outsourcing is an alternative option for firms with limited use of sales specialists because
it is argued that activities that do not rely directly on the firm’s core competencies can
often be performed more effectively and efficiently by outside specialists on a contractual
basis.