Topic 3 Defining Strategic Role of Sales Managment

Topic 3 – Defining the Strategic Role of Sales Function

 

Organizational Strategies and Sales Function

When it comes to organizational strategies we will be looking;

·         Strategic Change and the Sales Function

·         Organizational Strategy Levels

·         Corporate Strategy and the Sales Function

·         Business Strategy and the Sales Function

·         Marketing Strategy and the Sales Function

·         Organizational Buyer Behavior

·         Sales Strategy

·         Sales Organization Concepts

·         Selling Situation Contingencies

·         Sales Organization Structures

·         Comparing Sales Organization Structures

 Organizational Strategy Levels

Corporate strategy – consists of decisions that determine the mission, business portfolio, and future growth direction for the entire corporate entity.

Strategic Business Unit (SBU) – A separate business strategy must be developed for each strategic business unit in the corporate family defining how that SBU plans to compete effectively within the industry.

Marketing strategy – Each marketing strategy includes the selection of target market segments and the development of a marketing mix to serve each target market. A key consideration is the role that personal selling will play in the marketing communication mix for a particular marketing strategy.

The corporate, business, and marketing strategies represent strategy development from the perspective of different levels within an organization.

Although sales management may have some influence on the decisions made at each level, the key decision makers are typically from higher management level outside the sales function. Sales management however, plays the key role in sales strategy development. 

Organizational Strategy and the Sales Function

Organizational Strategy

Strategic decisions at the top most level of multi-business multi-product firm determine the corporate strategy for a given firm which is what provides direction and guidance for activities at all organizational levels.

Developing a corporate strategy requires the following steps:

·         Analyzing corporate performance and identifying future opportunities and threats.

·         Determining corporate mission and objectives.

·         Defining business units.

·         Setting objectives for each business unit.

·         Once strategy has been developed, management is concerned with implementation, evaluation and control of the corporate strategic plan. 

How does Corporate Mission statement affect Sales Management Activities?

The development of a statement of the corporate mission is an important first step in the strategic formulation process. The mission statement provides direction and guidance for strategy development and execution throughout the organization.

Sales managers and salespeople must operate within the guidelines presented in the corporate mission statement. Similarly they can use these corporate guidelines as a basis for establishing specific policies for the entire sales organization.

How does Defining SBU affect Sales Management Activities?

Changes in SBU definition may increase or decrease the number of SBUs, and these changes typically affect the sales function in many ways. 

·         Salesforce may have to be merged.

·         New Salesforce may have to be established

·         Existing Salesforce may have to be reorganized to perform different activities

These changes may affect all sales management activities from the type of salespeople to be hired to how they should be trained, motivated, compensated, and supervised.

Example: GE had considered lighting and appliances to be separate SBUs, however decided it could cut costs and better focus sales resources by combining lighting and appliance into a new business unit called GE Consumer Products. All of the products GE sells to consumers are now included in GE Consumer Products (except some financial service at GE Capital Corp)

These changes gave GE Sales organization much more leverage in the consumers’ marketplace and increase the productivity of selling resources. 

Objectives of Strategic Business Units

Determining strategic objectives for each SBU is an important aspect of corporate strategy. This strategic objectives affects the development of the sales organization’s objectives, the selling tasks performed by the salespeople, and the activities of sales managers.

All sales organization policies are designed to help salespeople achieve the objectives of the business units.

 

Business Strategy and the Sales Function

The essence of business strategy is competitive advantages;

·         How can each SBU compete successfully against competitive products and services?

·         What differential advantage will each SBU try to exploit in the marketplace?

·         What can each SBU do better than competitors?

 

Types of Business Strategies (Porter)

·         Low Cost

·         Differentiation

·         Niche

Each emphasize a different type of competitive advantages and has different implications for a Sales Organization.

Low Cost Supplier – Aggressive construction of efficient-scale facilities, vigorous pursuit of cost reduction from experience, tight cost and overhead control usually associated with high relative market share.

Role of Salesforce – Servicing large current customers, pursuing large scale prospects, minimizing costs, selling on the basis of price, and usuallyassuming significant order-taking responsibilities.

Differentiation – Creation of something perceived industry wide as being unique. Provides insulation against competitive rivalry because of brand loyalty and resulting lower sensitivity to price.

Role of Salesforce – Selling non-price benefits, generating orders, providing high quality of customer services and responsiveness, possibly significant amount of prospecting. 

Niche – Service of a particular target market with each functional policy developed in mind. Although market share in the industry might by low, the firm dominates a segment within the industry.

Role of Salesforce – To become experts in the operations and opportunities associated with the target markets; focusing on customer attention on non-price benefits

Porter’s Generic Business Strategy

The activities of sales managers and sales people differ depending on whether the business unit is using a low-cost, differentiation, or niche business strategy. The sales function can often provide basis for differentiation. 

Customer Relationship Management (CRM)

Many companies are adapting Customer Relationship Management (CRM) as a business strategy. Here businesses select and manage the most valuable customer relationship. CRM requires a customer centric business philosophy and culture to support effective marketing, sales, and service process.

A critical aspect of CRM is that first of all it is a business strategy and secondly a technological application. Successful firms develop a CRM strategy then look for the appropriate technology to execute this strategy.

Unsuccessful firms develop tries to implement a CRM technology without having a CRM strategy. 

 Marketing Strategy and the Sales Function.

Separate marketing strategies are often developed for each SBU target market. This is because SBUs typically market multiple products to different customer groups.

Marketing strategies for each target market should reinforce the differentiation competitive advantage that the SBU tries to enforce. The key component any marketing strategy are the selection of a target market and the development of a marketing mix. Marketing strategies for each target market should reinforce the differentiation competitive advantage that the SBU tries to enforce.

Target market selection requires a definition of the specific market segment to be served. The marketing mix then consist of a marketing offer designed to appeal to the defined target market.

This marketing offer contains a mixture of product, price, distribution, and marketing communications strategies. The critical task for the marketing strategist is to develop a marketing mix that satisfies the needs of the target market better then competitive offering.

The marketing communications strategy consists of a mixture of personal selling, advertising, sales promotion and publicity with most strategies emphasizing either personal selling or advertising as the main tool.

Key strategic decision is to determine when marketing communications strategies should be driven by personal selling or advertising. 

Advantages and Disadvantages of Personal Selling:

Personal selling is the only promotional tool that consists of personal communication between seller and buyer which does have some advantages as well as disadvantages.

·         Advantages – More credible and more impact; Better timing of messages; Flexibility to change communication message; allow for a sales to be closed.

·         Disadvantages – High cost involved in order to reach each member of the audience.

Personal selling is an important element of a marketing communications strategy. The marketing communications strategy is one element of a marketing mix designed to appeal to a defined target market.

A marketing strategy can be defined in terms of target market and marketing mix components.

Target Market Situation and Personal Selling:

Personal selling-driven strategies are appropriate when;

·         The market consists of only a few buyers that tend to be concentrated in locations.

·         The buyer needs a great deal of information.

·         The purchase is important.

·         The product is complex.

·         Service after the sale is important.     

Because personal selling is similar to those found in most business transactions, it is the most preferred tool in business marketing whereas advertising is normally emphasized in communication marketing situation.

An effective marketing communications mix capitalizes on the advantages of each promotional tool however, characteristics of the target must be considered, and the promotional mix must also be consistent with the other elements of the marketing mix to ensure a coordinated marketing offer.

Marketing Mix Elements and Personal Selling:

One of the difficult challenges facing the marketing strategist is making sure that decisions concerning the product, distribution, price, and marketing communications areas result in an effective marketing mix.

Different ways the mentioned elements can be combined to form a marketing mix so the development of a unique marketing mixes may produce competitive advantages in the marketplace. 

Integrated Marketing Communications:

Although marketing communications strategies are typically driven by advertising or personal selling, most firms use a variety of tools in their marketing communication mix.

Integrated Marketing Communication (IMC) is the strategic integration of multiple marketing communications tools in the most effective and efficient manner.

Objective is to use – most cost effective tool to achieve a desired communication objective and to ensure a consistent message is being communicated to the market. A typical approach is to use some form of advertising to generate company and product awareness and to identify potential customers.

Consumer Markets

·         Television Advertisement.

·         Literature, Coupon, etc.

·         Pint Ad, Direct Mail, Radio Ad etc.

·         Catalogue and Directory.

·         Public relations, trade show and public exhibitions. 

Business Markets

·         Personal Selling, Print Ad, Direct Mail.

·         Trade Show and Exhibitions, Catalogues

·         Directories,

·         Literature, Coupons

·         Public Relations, Dealer and distributor materials

 

Sales Strategy Framework

Corporate, business, and marketing strategies view customers as aggregate markets or market segments.

·         Organizational Strategies provides Directions and Guidance for the Sales Function.

·         Sales Managers and Salespeople must translate these strategies into Specific Strategies for Individual customers.

·         Sales Strategy is designed to execute an organization’s marketing strategy for individual accounts 

 

A Firms Sales Strategies is important for 2 basic reasons

1.      It has a major impact on a firm’s sales and profit performance

2.      It Influences many other sales management decision such as: Salesforce recruitment/selecting, training, compensation, and performance evaluations.

Organization Buyer Behavior

Organizational buyer behavior refers to the purchasing behavior of organizations.

Although there are unique aspects in the buying behavior of any organization, specific types of organizations tend to share similarities in their purchasing procedures.

Example:

Major Category                     Types

Business or Industrial User – purchase products to produce others

Government Org.                    Federal, State etc.

Institutions                              Public or Private Institutions

 

Buying Situation:

One key determinant of organizational buyer behavior is the buying situation faced by an account. Three major types of buyer behaviors are possible. (Own problems and different strategic implications for selling firm)

1.      A New Task Buying Situation

2.      Modified Rebuy Buying Situation

3.      Straight Rebuy Buying Situation

A New Task Buying Situation – The organization is purchasing the product for the first time, poses the most problems for the buyer. Because the account has little knowledge or experience as a basis for making the purchase decision, it will typically use a lengthy process to collect and evaluate purchase information.

The decision-making process in this type of situation is often called Extensive Problem Solving.

Modified Rebuying Buying Situation – Exists when the account has previously purchased and used the product. Although the account has information and experience with the product, it will usually want to collect additional information and may make a change when purchasing a replacement product.

The decision-making process in this type of situation is often referred to as Limited Problem Solving

Straight Rebuy Buying Situation – The account has considerable experience in using the product and is satisfied with the current arrangements. In this situation, the buyer is merely reordering from the current supplier and engaging in Routinized Response Behavior.

 

Buying Center:

One of the most important characteristics of organizational buyer behavior is the involvement of the many individuals from the firm that participate in the purchasing process. 

The term Buying Center has been used to designate these individuals. Buying Center is not a designation on the organization’s structure but an informal network of purchasing participants (Selling firm difficulty is to identify all the buying center members and to determine the specific role of each. The possible roles that buying center members might play in a particular purchasing decision are: 

1.      Initiators – Who start the organizational purchasing process?

2.      Users – Who use the product to be purchased?

3.      Gatekeepers – Who control the flow of information between buying center members?

4.      Influencers – Who provide input for the purchasing decision?

5.      Deciders – Who make the final purchase decision?

6.      Purchasers – Who implement the purchasing decision?

Each buying center role may be performed by more than one individual and each individual may perform more than one buying center role.

 

Buying Process:

Organizational buyer behavior can be viewed as a buying process consisting of several phases. Process can presented in many different ways but the main one are:

·         Phase 1 – Recognition of problem or need.

·         Phase 2 – Determination of the characteristics of the item and quantity needed.

·         Phase 3 – Description of the characteristics of the items and quantity needed.

·         Phase 4 – Search for and qualification of potential sources.

·         Phase 5 – Acquisition and analysis of proposals.

·         Phase 6 – Evaluation of proposals and selection of suppliers

Viewing organizational buying as a multiple-phase process is helpful in developing sales strategy. A major objective of any sales strategy is to facilitate an accounts movement through this process in a manner that will lead to a purchase of the seller’s product. 

Buying Needs

Organizational buying is typically viewed as goal-directed behavior intended to satisfy specific buying needs. Although the organizational purchasing process is made to satisfy organizational needs, the buying center consist of individuals who are also trying to satisfy individual needs throughout the decision process

Although a number of suppliers might be able to provide similar products, some suppliers at lower cost than others, buying center members might select the most well-known brand to reduce purchase risk and protect job security.

Nevertheless, sales managers must understand this behavior to develop sales strategies that will satisfy the personal and organizational needs of buying center members 

Sales Strategy

Sales Managers and Salespeople are typically responsible for strategic decisions at the account level. Although the firm’s marketing strategy provides basic guidelines – an overall game plan – the battles are won on an account to account basis.

Without the design and execution of effective sales strategies directed at specific accounts, the marketing strategy cannot be successfully implemented. Sales Framework suggest four basic sales strategy elements:

1.      Account targeting strategy

2.      Relationship Strategy

3.      Selling Strategy

4.      Sales Channel Strategy

Sales strategies are ultimately developed for each individual account, however, the strategic decisions are often made by classifying individual accounts into similar categories. 

Account targeting Strategy

The first elements of a sales strategy is defining an account targeting strategy. Remember all accounts within a target market are not the same. Some accounts might not be good prospect because of existing relationship with competitors

Example:

IBM targets four different types of account targeting strategy; (Small and Medium sized businesses).

1.      The largest customers whose business problems need a complex solution.

2.      The smaller customers that do not need as much attention.

3.      Prospective Customers.

4.      The very smallest customers

Good prospect or current customers differ in term of how much they buy now or in the future, how they want to do business with sales organization or other factors

All accounts cannot be served effectively or efficiently in the same way. In summary, the Account targeting Strategy provide for the foundation for all elements of a sales strategy

RELATIONSHIP STRATEGY

A Relationship Strategy is a determination of the type of relationships developed with different account groups. A specific relationship strategy is develop for each account group identified by a sales organization’s account target strategy.

Any number of relationship strategies might be developed, but typically an account targeting strategy defines three to five target group each requiring a specific relationship strategy.

The relationship strategies range from a Transaction relationship based on selling standardized products to a Collaborative relationship in which the buyers and sellers work closely together for the benefit of both businesses.

Between are the Intermediate types of relationships, such as the Solution relationship which emphasizing solving customer problems and Partnership relationship which preferred suppliers position over the long term.

Transaction relationship to Collaborative relationship – the time frame becomes longer, the focus changes from buying/selling to creating value, and the products and services offered move from simple and standardized to more complex and customized.

The move from transaction to collaborative relationships require a greater commitment between buyer and seller, because they will be working together more closely.

Selling costs are expected to increase in order to serve accounts with higher-level relationships. Sales organizations must consider the sales and costs associated with using different relationship strategies for different account groups.

The critical task is balancing the customer’s needs with the cost to serve the account. The success of executing a specific relationship strategy requires a different selling approach.

A Selling Strategy is the planned selling approach for each relationship strategy.

1.      Stimulus Approach

2.      Mental States Approach

3.      Need Satisfaction Approach

4.      Problem Solving Approach

5.      Consultative Approach

Sometimes, a collaborative relationship strategy require a selling strategy that is completely customized to the specific buyer-seller situation.

The important point is that achieving the desired type of relationship in a productive manner requires using different selling strategies. Matching selling strategies and relationship strategies as an important sales management task.

Sales Channel Strategy – ensuring that accounts receive selling effort coverage in an effective and efficient manner. The Sales channel strategy is a necessary component of a sales strategy and various methods of sales channels are available.

·         Company’s Salesforce

·         Internet, Telemarketing

·         Industrial distributors

·         Independent representatives

·         Team selling and Trade Shows

·         Company’s Salesforce

·         Internet – Important sales channel with many firms integrating this channel with the field Salesforce.

·         Telemarketing – use of telephone to contact customers

·         Industrial distributors – Channel middleman that take title to the goods and sell them to end users.

·         Independent representatives

·         Team selling – Participation of many individuals from the selling firm.

·         Trade Shows – Industry sponsored event

 

Many firms use multiple distribution channels and multiple sales channels for their products.

A study in the US found that 40 percent of sales are done through indirect sales channel and this is expected to increase to over 60 percent by 2010.

Another study however found that the salespeople are still the most important means of interacting with customers followed by the internet.

The development of effective strategies is one thing, successfully implementing them is another.

The different strategic levels must be consistent and integrated to be effective. Strategic changes at one organizational level typically require strategic changes at other organizational levels.

 

 

Sources:

Sales Management Analysis and Decision Making by Pilai, Ingram, LaForge, Avila, Schwepker Jr Williams. 5^th Edition Thomson South-Western