Lecture Sales and distribution management: Chapter 7 - Krishna K Havaldar, Vasant M Cavale

Chapter 7, controlling the salesforce. After studying this chapter you will be able: To know criteria and types of salesforce expense plans; to understand salesforce audit and its evaluation process; to learn evaluation of effectiveness of a sales organisation through sales, cost, profitability, and productivity analysis;…

Chapter

7

Controlling the Salesforce

• To know purposes and procedure for evaluating and controlling the performance of salespeople

• To understand ethical, social, and legal responsibilities of sales managers and salespeople

Salesforce Expense Plans

• Salesforce expenses include travel, meals, lodging, telephone, and customer entertainment

• Firms have salesforce expense plans to ensure proper spending

• Objectives / Criteria of effective expense plans are:

It should be

• Fair to the salesperson and company

• Simple and economical to administer

• Clear to prevent misunderstanding

• Reimbursed without much delay

• Allowing differences in expenses among different territories

Salesforce Expense Plans (Continued)

Four types of salesforce expense plans

• Salespeople pay all expenses

Merits: Simple, less cost for company, salespeople get income tax advantage

Demerits: Less control on salespeople’s activities; selling activities not done properly

non-• Company pays all expenses / Unlimited payment plan

Merits: Good control on salespersons activities; no anxiety for sales people on spending money

Demerits: Salespeople spend more and may make money unethically

Salesforce Expense Plans (Continured)

• Company partially pays expenses / Limited payment plan

Merits: Useful in budget planning; less disputes; better control on salesperson’s activities

Demerits: Needs more time to set expense limits and administer; Inflexible plan, not liked by good salespeople

• Combination plan / Expense-quota plan

• Combines limited and unlimited plans

• Advantages of both plans

• Company has control on selling expenses; salespeople have flexibility within total expense budget

Salesforce Audit

• Salesforce or sales management audit is a part of marketing audit

• A marketing or salesforce audit is a comprehensive, systematic, diagnostic, and prescriptive tool, to be used periodically

• Purpose To assess adequacy of process, improve performance, recommend changes

• Evaluation process of salesforce audit It has 3 stages Company management should find out:

• What happened by comparing actual performance with goals

• Why it happened by identifying factors contributing to negative variance Difficult and time consuming task

• What to do about it by taking corrective actions

Evaluation of Effectiveness of Sales Organisation

• To know “what happened”, companies analyse their sales, costs, profits, and productivity

• Effectiveness model of a sales organisation

Effectiveness

of a Sales Organisation

Sales Analysis

• Sales analysis of a company can be done in different ways:

• Different alternatives are shown in a framework below:

Different Type of Sales

Different Type of Analysis

National and/or international levels sales organisation Regional level

Branch /district level Territory level

Individual level Total sales of the company

By type of products

By type of distribution channels

By type of customer classifications

By size of orders

Comparisons with sales quotas / targets Comparisons with previous periods Comparisons with industry / competitors Comparisons within sales organisations Comparisons with sales forecasts

Sales Analysis (Continued)

• Sales analysis is done at all levels of the sales organisation

• Reasons

(1) For evaluation and control: sales analysis needed at different organisation levels like regional, district, territory

(2) For identifying problems:

Use hierarchical sales analysis E.G.

• Sales performance at national level below sales volume budget

• Find which regions have problems in achieving sales quotas

• Focus sales analysis of branches reporting to problematic regions

• Do sales analysis of territories under problematic branches

• Further analysis of problematic territories to be done by talking to salespeople, customers, branch managers

• Corrective actions can then be taken to improve sales

• Extend hierarchical sales analysis to different type of sales

• Out of different type of analysis, comparisons with sales quotas are widely used

Marketing Cost and Profitability Analysis

• Purpose: To measure profitability of company’s

marketing units such as territories, market segments, products, channels, & customers

• This information helps to decide which marketing units to

be expanded, reduced, or eliminated in future

• Procedure

• State purpose of the analysis

• Identity major functional (or activity) expenses

• Convert natural accounting expenses into functional expenses

• Allocate functional expenses to marketing units

• Prepare profitability of marketing units, by using cost approach”, or “contribution approach”

“full-Purpose of the Analysis

• Before starting cost and profitability analysis, it is necessary

to know for which marketing units the analysis would be done

• This helps to classify costs into direct and indirect E.G

Salesperson’s salary is direct cost for territory analysis, but indirect cost for analysis of products or segments

Identify Major Functional Expenses

• The company should prepare a list of major functions or activities with respect to marketing expenses

• E.G Personal selling expenses, order processing expenses, packing and delivery expenses, warehousing and inventory expenses, administration expenses

Convert Natural Accounting Expenses into

Promotion

Warehousing &

Inventory Administration

Salaries 20,000,000 10,000,000 4,000,000 2,000,000 4,000,000 Rent 10,000,000 2,500,000 1,000,000 5,000,000 1,500,000

Allocate Functional Expenses to Marketing

Units

• Functional expenses are allocated to the marketing unit under study, depending on several bases shown below, as examples

Function Bases of allocation of expenses

• Personal selling • Directly to sales territories

• Selling time given to each product and market segment

• Sales calls x average time per call to customers & channels

• Advertising and

sales promotion • Circulation of media to sales territories

• Media space for each product & market segment

• Equal charges to customers & channels

• Administration • Equal charges for all marketing units

• Above allocations are done to find marketing costs and profitability of marketing units

Prepare Profitability of Marketing Units

• This is done by preparing profit & loss statements for the marketing units under study

• Two approaches are available in allocating marketing costs for profitability analysis: (1) Full-cost, (2) Contribution

• Full-cost approach: All marketing costs, both direct & indirect, are allocated to the marketing unit

• Useful for long-term profitability studies of products and market segments

• Contribution approach: Only direct marketing costs are allocated to the marketing unit

• Useful for short-term decisions like profitability of branches / regions

Productivity Analysis

• Productivity is generally measured by ratio between output & input

• Some of the productivity ratios in sales management are:

• Sales per salesperson (used by many companies)

• Selling expenses per salesperson

• Sales calls per salesperson

• Improvement in productivity leads to increase in profitability

• Some of the methods used by firms to improve productivity

• Reducing salesforce size

• Hiring manufacturer’s reps or agents on commission basis

• Using the internet, telemarketing, direct mail to reach customers

• Increasing sales volume substantially

Evaluating & Controlling Performance of

Salespeople

• Purposes / objectives / importance of performance evaluation of salespeople are:

• Mainly to find how salespeople have performed

• This information is used for other purposes, such as:

• Improving salespersons’ performance, by identifying causes of unsatisfactory performance

• Deciding salary increments and incentive payments

• Identifying salespeople for promotion

• Determining training needs

• Motivating salespeople through recognition and reward

• Understanding strengths and weaknesses of salespeople

Procedure for Evaluating and Controlling

Salesforce Performance

The steps involved in the procedure are:

• Set policies on performance evaluation and control

• Decide bases of salespersons’ performance evaluation

• Establish performance standards

• Compare actual performance with the standards

• Review performance evaluation with salespeople

• Decide sales management actions and control

We shall describe above steps briefly

Set Policies on Performance Evaluation & Control

Most companies establish basic policies Examples are:

• Frequency of evaluation Mostly once a year

• Who conducts evaluation? Mainly immediate supervisor

• Assessment techniques to be used E.G Management by objectives (MBO), 360-degree feedback

• Sources of information Sales analysis, new business reports, lost business reports, call plans, etc

• Bases of salesforce evaluation (next slide)

• Conducting performance review sessions with salespeople

Decide Bases for Salespersons’ Performance

Evaluation

• A firm should decide which of the following bases / criteria it would use: (1) result / outcome based, (2) efforts / behavioural based, or (3) both results & efforts based

• A company selects performance bases or criteria from a list of alternatives, some of them shown below:

 New accounts nos.

 Lost accounts nos.

• Customer calls

 No of calls per day

 No of calls per customer

• Non-selling activities

 overdue payments collected

 No of reports sent

• Performance standards for efforts / behavioural criteria

are difficult to set

• For this, companies do “time and duty analysis” or use executive judgement

• Performance standards should not be too high or too low

• After establishing standards, salespeople must be informed

Compare Actual Performance with Standards

• Salesperson’s actual performance is measured and compared with the performance standards

• For this, sales managers use different methods or forms:

• Graphic rating scales

• Ranking

• Behaviourally anchored rating scale (BARS)

• Management by Objectives (MBO)

• Descriptive statements

• Companies combine some of the above methods for an effective evaluation system

Review Performance Evaluation with Salespeople

• Performance review / appraisal session is conducted, after evaluation of the salesperson’s performance

• Sales manager should first review high / good ratings , and then review other ratings

• Both should decide objectives / goals and action plan for future period

• After the review, sales manager should write about performance evaluation & objectives for the future

• Guidelines for reviewing performance of salespersons

• First discuss performance standards / criteria / bases

• Ask the salesperson to review his performance

• Sales manager presents his views

• Establish mutual agreement on the performance

Decide Sales Management Actions and Control

• Many companies combine this step with the previous step – i.e performance review

• During performance review meeting with salesperson, sales manager does the following:

• Identifies the problem areas E.G Sales quotas not achieved

• Finds causes E.G less sales calls, poor market coverage, or superior performance of competitors

• Decides sales management actions E.G train salesperson, redesign territories, or review company’s sales / marketing strategies

• If a salesperson’s performance is good, he / she should

be rewarded and recognised

Business Ethics and Sales Management

• Sales managers and salespeople have ethical responsibilities

• Some of the ethical situations are:

• Relations with the company EGs Expense statements, credit for damaged merchandise

• Relations with customers EGs Gifts, false information to get business, customer entertainment

• Ethical guidelines

• A code of ethics developed by the company would be effective if it is enforced by top management

• A company has following four responsibilities to its eight stakeholders: C ustomers, C ommunity, C reditors, G overnment,

O wners, M anagers, E mployees, and S uppliers, acronym:

CCCGOMES

• Ethical responsibilities Deal with fairness, equity, impartiality

• Legal responsibilities Follow laws and regulations

• Economic responsibilities Produce and market goods / services that society wants, and make reasonable profits

• Voluntary responsibilities Make social ( EG philanthropic) contributions

Legal Responsibilities and Sales Management

• Laws and regulations by local, state, or central governments have impact on sales management

• Price discrimination As per MRTP act, 1969, seller should not discriminate prices among similar buyers (e.g retailers)

• Price fixing Under MRTP act, it is unlawful for suppliers to fix prices

• Consumer protection As per Consumer Protection Act,

1986, it is illegal to make false or misleading claims about products / services

• Bribes Payment of money or giving gifts to gain a customer is illegal under Indian Contracts Act 1872 and Sale of Goods act, 1930 Sales managers must take responsibility that laws are not violated

• Salesforce audit is done to access process adequacy, improve performance, and recommend changes

• For evaluating effectiveness of a sales organisation , the company analyse sales, costs, profits, and productivity

• Sales analysis is done at all levels in a sales organisation, for (a) evaluation and control, and (b) identifying problems

• Purpose of marketing cost and profitability analysis is to measure profitability of company’s marketing units

Key Learnings (Continued)

full-cost and contribution

management is sales per salesperson

• Main purpose of performance evaluation of salespeople is to find how salespeople have performed

responsibilities

• Corporate social responsibility is distinguishing right from wrong and doing the right