McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. 1.1 - Examples from Bank & Insurance Company Dr Arthur Lin *Associate.

1.1

McGraw-Hill/Irwin

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

-Examples from Bank & Insurance Company

Dr Arthur Lin*Associate professor of National Taipei University*Chairman of Taiwan Life Asset Management Co.*Ph.D of Université de Paris I

Sales Management of Financial Industry

1.2

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1.2McGraw-Hill/Irwin


Evaluation & control of sales force

performance

The external environment

The organizational environment

Marketing activities

Performance

Salesperson’s view of job

requirements, role perceptions

Sales planning

Account management

policies

Sales force organization

Deployment

Supervision

Selection, training, and motivating the

sales forcePersonal

characteristics

SALES MANAGEMENT

ACTIVITIES

DETERMINANTS OF THE

SALESPERSON”S PERFORMANCE OUTCOMES CONTROL

MARKETING STRATEGY

THE ENVIRONMENT

Feedback

An Overview of Sales Management

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1. Selling functionPlan selling activitiesSearch out leadsCall potential accountsIdentify decision makersPrepare sales presentationOvercome objectionsIntroduce new productsCall new accounts

2. Working with othersWrite up ordersExpedite ordersHandle back ordersHandle shipping problemsFind lost orders

3. Servicing the productLearn about the productTest equipmentSupervise installationTrain customersSupervise installationTrain customersSupervise repairsPerform maintenance

4. Managing InformationProvide technical informationReceive feedbackProvide feedbackCheck with superiors

Selling Job Factors

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5. Servicing the AccountStock shelvesSet up displaysTake inventory for clientHandle local advertising

6. Attending conferences andmeetingsAttend sales conferencesAttend regional sales meetingsWork at client conferencesSet up product exhibitionsAttend periodic training sessions

7. Training and recruitingRecruit new sales repsTrain new salespeopleTravel with trainees

8. EntertainingEntertain clients with golf and so forthTake clients to dinnerTake clients out for drinkTake clients out to lunchThrow parties for clients

Selling Job Factors

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2.5

9. TravelingTravel out of townSpend nights on the roadTravel in town

10. Distribution Establish good relations with distributors Sell to distributors Handle credit Collect past due accounts

from the Journal of Marketing Research, William C. Moncrief,IIIAug. 1986

Selling Job Factors

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2.6

Average cost of a sales call can be up to $400

This rising cost demands a search for new ways to improve sales force efficiency

Service Calls5%

Prospecting14%

With Customers – 15%

Waiting/Traveling32%

AdministrativeTasks – 34%

from Fenemore Group,Sales & Marketing Mgmt. 3/98

Time Use by Salespeople

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Servicing the Account

Closing the Sale

Presenting the Sales Message

Qualifying the Prospect

Opening the Relationship

Prospecting for Customers

1

2

3

4

5

6

Stages in the Selling Process

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Different types of salespeople use alternative selling approaches such as . . .

• Stimulus-Response Approach

• Mental-States Approach

• Need-Satisfaction Approach

• Problem-Solution Approach

Stimulus-Response

Mental-States

Need-Satisfaction

Problem-Solution

Alternative Selling Approaches

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Stage I – ExplorationDetermine value, build trust, set expectations, monitor

Stage II – ExpansionGenerate repeat sales, full-line selling, cross-selling

Stage III – CommitmentBuild loyalty, become a preferred supplier, engage in

TQM – a discipline that focuses on eliminating errors and defects in all aspects of products and process

Stages in Relationship Development

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Compatible lines

Compatible territories

Compatible customers

Credibility of the rep

Capabilities

Credits

Six C’s of Finding the Right Rep

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Six building blocks:

1. Start with a strategy

2. Appoint an expansion team

3. Leverage existing strengths

4. Go to the press

5. Avoid compensation snafus

6. Provide support

Sales managers assigned to create a new sales force can employ “best practices”

A New Sales Force

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Access economic environment

Estimate marker and/or sales potential

Develop sales forecast

Compare forecast with objectives

In agreement?

Establish sales quotas

Redesign the marketing program

No

Yes

Market Potential, Sales Potential, and Sales Forecasting

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SUBJECTIVEOBJECTIVE

Market test – place product in select areas

Time series analysis – relies on historical data to develop predictions for the future

Statistical demand analysis – attempts to make a comparison to determine the relationship between sales and factors that influence sales

Objective Methods of Sales Forecasting

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Salespeople are among the most productive assets of a company, and they are also among the most expensive!

How can an optimal sales force be established?

Breakdown method:

Number of salespersonnel needed =

Sales Volume

Productivity

Determining Sales Force Size

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Classify customers into categories

Determine frequency and length of calls

Calculate work load to cover entire market

Determine time available per salesperson

Apportion salesperson’s time by task performed

Calculate the number of salespeople needed

Workload Method Model

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Select basic control unit

Estimate market potential in each control unit

Combine control units in tentative territories

Perform work load analysis

Adjust tentative territories as needed

Assign salespeople to territories

Stages in Territory Design

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5.17

Account Planning Matrix

Account offers good opportunity since it has high potential and sales organization has differential advantage in serving it. Commit high level of sales resources to take advantage of the opportunity.

Account may offer good opportunity if sales organization can overcome its competitive disadvantage and strengthen its position. Either direct a high level of sales resources to improve position and take advantage of the opportunity to shift resources to other accounts.

Account offers stable opportunity since sales organization has differential advantage in serving it. Allocate moderate levels of sales resources to maintain current advantage.

Account offers little opportunity. Devote minimal level of sales resources to the account or consider abandoning the account altogether.

Account Attractiveness

High

Low

Sales Organization Competitive Strength

LowHigh

SOURCE: Adapted from Raymond La Forge and David W. Cravens, “Steps in Selling Effort Deployment,” Industrial Marketing Management, II (1982), pp. 183-94; Renato Fiocca, “Account Portfolio Analysis for Strategy Development,” Industrial Marketing Management, II (1982), pp. 53-62; and Raymond W. La Forge, David W. Cravens, and Clifford E. Young, “Improving Salesforce Productivity,” Business Horizons, 28 (September-October 1985), pp. 50-51.

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Understanding Performance

Personal, organizational and environmental variables

Personal, organizational and environmental variables

Role PerceptionsRole Perceptions

AptitudeAptitude

Skill LevelSkill Level

Motivation LevelMotivation Level

PerformancePerformance RewardsRewards SatisfactionSatisfaction

InternalExternal

IntrinsicExtrinsic

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Two broad types of rewards:

Extrinsic – rewards controlled and bestowed by people other than the salesperson

Intrinsic – rewards that salespeople primarily attain for themselves or within themselves

Rewards

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Role Expectations – Does the role partner expect me to engage in that activity?

Role Ambiguity – Do I know what the role partner expects with regard to that activity?

Role Conflict – Is there a disagreement between two of these role partners over performance of that activity?

Role Inaccuracy - Are the salesperson’s perceptions of the demands being placed upon him or her correct?

Sales Perceptions of the Job

CompanyCompany

Sales ManagersSales Managers

CustomersCustomers

FamilyFamilySalespersonSalesperson

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Psychological Determinants of Motivation

Level of effort expended

Level of effort expended

Job activity taskJob activity task

Level of performance on some performance dimension

Level of performance on some performance dimension

Increased attainment of rewards

Increased attainment of rewards

MotivationMotivation

Valence for Performance

Instrumentality multiplied by valence

Valence for Performance

Instrumentality multiplied by valence

Valence for Rewards

Perceived desire for receiving more reward

Valence for Rewards

Perceived desire for receiving more reward

Instrumentality

Perceived link between improved performance and increased reward

Instrumentality

Perceived link between improved performance and increased reward

Expectancy

Perceived link between increased effort and improved performance

Expectancy

Perceived link between increased effort and improved performance

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Frustration; disenchantmen

t

Sales Career Path

Promoted to management

Promoted to management

Exploratory stage; new recruits

Exploratory stage; new recruits

Establishment stage

Establishment stage

Maintenance stage

Maintenance stage

Disengagement stage

Disengagement stage

Drop-outs; terminations

Drop-outs; terminations

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Variable affecting performance Management actions

Aptitude

Personal characteristics

Skill levels

Role perceptions

Motivation

Organizational and environmental factors

Recruitment/selection policies

Recruitment/selection policies

Training and supervision

Training and supervision

Compensation/ reward systems

Sales force organization

Variables That Cause Differences in Performance

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10.24

Meg Kerr and Bill Burzynski, “Missing the Target: Sales Training in America,” Training and Development Journal, (July 1988), p. 68.

SOURCE:

(percent of all characteristics cited; multiple responses were possible)

Sales RecordSales Record

Committed to quality and customer service, aggressiveness, persistent, self-confident

48%

Sales, problem-solving, communication, time management 25%

Product, industry, market

Meets objectives

Completes paperwork, political acumen

13%

11%

4%

OtherOther

KnowledgeKnowledge

SkillsSkills

AttitudeAttitude

Characteristics of a Successful Salesperson

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10.25

25%

Characteristics of Success*

Program Content: New Hires

Program Content: 1-3 Years Seniority

13%

48%

56%

43%

1%

65%

35%

0%

*See Exhibit 1 for additional characteristics.

Meg Kerr and Bill Burzynski, “Missing the Target: Sales Training in America,” Training and Development Journal, (July 1988), p. 69.

SOURCE:

KnowledgeKnowledge

SkillsSkills

AttitudeAttitude

Program Content Versus Characteristics of Success

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Method % of firms offering

0 25 50 75 100

On-the-job 84.3Individual Instruction 69.8

In-house classes 60.8External seminars 71

Home assignments 17.7

Other 6.7

Methods Used in Sales Training

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Components and Objectives of Financial Compensation Plans

11.27

Sales ContestsSales Contests

Incentive Payments

Incentive Payments

CommissionsCommissions

BenefitsBenefits

SalarySalary

•Stimulate additional effort targeted at specific short-term objectives

•Direct effort toward strategic objectives•Provide additional rewards for top performers•Encourage sales success

•Motivate a high level of selling effort•Encourage sales success

•Satisfy salespeople’s security needs•Match competitive offers

•Motivate effort on non-selling activities•Adjust for differences in territory potential•Reward experience and competence

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Performance-Based

Compensation

Performance-Based

Compensation

Special

Compensation

Special

Compensation

Sales

Compensation

Sales

Compensation

Total Compensation

Advanced Sales Compensation Seminar, The Alexander Group, Inc., Scottsdale, AZ, 1988.

SOURCE: 11.28

Fixed

Compensation

Fixed

Compensation

Intrinsic RewardsIntrinsic Rewards

Focused EffortsFocused Efforts

Outstanding PayOutstanding Pay

At Risk payAt Risk pay

Retention/Nonsales Pay

Retention/Nonsales Pay

Security NeedsSecurity Needs

ContestsContests

Overtarget Incentive Pay

Overtarget Incentive Pay

Target Incentive Pay

Target Incentive Pay

RecognitionRecognition

BenefitsBenefits

SalarySalary

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Commissions, salary, and incentives constitute the essential building blocks of most financial compensation plans for sales forces.

Most firms provide benefit packages and then use one of these three sales force compensation methods.

• Straight salary

• Straight commission

• A combination of base salary plus incentive in the form of commissions, bonuses or both

Types of Compensation Plans

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Straight SalaryStraight Salary

Straight

Commission

Straight

Commission

Characteristics of Compensation Methods for Sales Personnel

Advanced Sales Compensation Seminar, The Alexander Group, Inc., Scottsdale, AZ, 1988.

SOURCE: 11.30

CombinationCombination

Frequency of Use

12%

5%

85%

Especially Useful

When compensating new salespersons; when firm moves into new sales territories that require develop-mental work; when salespersons need to perform many nonselling activities

When highly aggressive selling is required; when nonselling tasks are minimized; when company cannot closely control sales force activities

When sales territories have relatively similar sales potentials; when firm wishes to provide incentive but still control sales force activities

Advantages

Provides salesperson with maximum amount of security; gives sales manager large amount of control over salespersons; easy to administer; yields more predictable selling expenses

Provides maximum amount of incentive; by increasing commission rate, sales managers can encourage salespersons to sell certain items; selling expenses relate directly to sales resources

Provides certain level of financial security; provides some incentive; selling expenses fluctuate with sales revenue; sales manager has some control over sales-person’s nonselling activities

Disadvantages

Provides no incentive; necessitates closer supervision of salespersons’ activities; during sales declines, selling expenses remain at same level

Salespersons have little financial security; sales manager has minimum control over sales force; may cause salespeople to provide inadequate service to smaller accounts; selling costs less predictable

Selling expenses less predictable; may be difficult to administer

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•General sales representative•Specialty sales representatives•Technical support

•Sales representatives

Team PerformanceTeam Performance Individual PerformanceIndividual Performance

McGraw-Hill/Irwin



Examples of Linked Team Incentive Plans• Linked plans are plans in which incentive payout for both components, including the

individual component, depends on achievement of team objectives, sales representatives may receive either a payout based on both individual and team achievement, or no bonus at all. Other members may receive only the team performance bonus.

• The common “team” bonus is the initial, and most lucrative, component for sales representatives

• Common components link team members to a shared destiny with a unifying objective.

Team Volume Bonus Team Volume Bonus

XX

Percent of Goal

>120%11010090

<90

Percent of Target Incentive

150%10075500

XXPercent of Goal

>140%12010080

<80


75%5025100

Components

Team Member Eligibility

Payout Mechanics (Sales Reps)

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•Sales representatives•Order fulfillment•Collections•Technical support

•Sales representatives

Team PerformanceTeam Performance Individual PerformanceIndividual Performance

McGraw-Hill/Irwin



Examples of Unlinked Team Incentive Plans• Unlinked plans are plans with additive components; sales representatives may earn either

bonus or both. Achievement of team objectives is not required to earn the individual bonus.

• The common “team” bonus is the initial, and most lucrative, component for sales representatives.

• Common components link team members to a shared destiny with a unifying objective.

Total Account Volume Bonus New Contract Bonus

++

Percent of Goal

>120%11010090

<90


150%9060300

++Percent of Goal

>140%12010080

<80


100%5040200

Components

Team Member Eligibility

Payout Mechanics (Sales Reps)

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Differences in Perspective Between Full Cost and Contribution Margin Approaches to Marketing Cost Analysis

12.33

Adapted from Patrick M. Dunne and Harry I. Wolk, “Marketing Cost Analysis: A Modularized Contribution Approach,” Journal of Marketing, 41 (July 1977), p. 84.

SOURCE:

Full Cost Approach

Less:

Equal:

Less:

Equal:

SalesCost of goods sold

Gross margin

Operating expenses (including the segment’s allocatedshare of company administration and general expense)

Net income

Contribution Margin Approach

Less:Less:

Equal:

Less:

Equal:

SalesVariable manufacturing costsOther variable costs directly traceable to the segment Contribution margin

Fixed costs directly traceable to productsFixed costs directly traceable to the market segment

Segment net income

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Activity-based costing (ABC) allocates costs to activities.

ABC identifies fixed cost components for supporting product production and sales and associates them with the products sold.

The underlying concept– activity drives costs. Thus, costs once assumed to be fixed in the short-run can be associated with operating units such as a sales office.

ABC Accounting

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Selling-direct costs:

Selling-indirect costs:

Advertising:

Personal calls by salesperson and supervisors on accounts and prospects; Sales salaries, incentive compensation, travel, and other expenses

Selling time devoted to each product, as shown by special sales call reports or other special studies

Number of sales calls times average time per call, as shown by special sales call reports or other special studies

Direct

Equal charge for each salesperson

1.

2.Field supervision, field sales office expense, sales administration expenses, sales personnel training, sales management. Market research, new product development, sales statistics, tabulating services, sales accounting

In proportion to direct selling time, or time records by projects

In proportion to direct selling time, or time records by project

Media costs such as TV, radio, billboards, newspaper, magazine, etc. Advertising production costs; advertising department salaries

Direct; or analysis of space and time by media; other costs in proportion to media costs

Equal charge to each account; or number of ultimate consumers and prospects in each account’s trading area

Direct; or analysis of source records

3.

Territories To Product Groups To Account Size Classes To Sales

Bases of AllocationFunctional Cost Group


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Functional Cost Group



Bases of Allocation

Sales promotion:

Transportation:

4.Consumer promotions such as coupons, patches, etc. Trade promotions such as price allowances, point-of-purchase displays, cooperative advertising, etc.




5.Railroad, truck, barge, etc., payments to carriers for delivery of finished goods from plants to warehouses and from warehouses to customers. Traffic department costs

Applicable rate times tonnages

Analysis of sampling of bills of lading

Applicable rates time tonnages

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Bases of Allocation

Storage and shipping:

Order processing:

Storage of finished goods shipping inventories in warehouses. Rent (or equivalent costs). Public warehouse charges, fire insurance and taxes on finished goods inventories, etc. Physical handling, assembling, and loading out of rail cars, trucks, barges for shipping finished products from warehouses and mills to customers. Labor, equipment, space and material costs

Number of order lines Number of order lines Number of order lines

6.

Checking and processing of orders from customers to mills for prices, weights and carload accumulation, shipping dates, coordination with production planning, transmittal to mills, etc. Pricing department. Preparation of customer invoices. Freight accounting. Credit and collection. Handling cash receipts. Provision for bad debts. Salary supplies, space and equipment costs (teletypes, flexowriters, etc.)

In proportion to direct selling time, or time records by projects

In proportion to direct selling time, or time records by project

Equal charge for each salesperson

7.

Functional Cost Group

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ROAM

Contribution as a percentage of sales

Asset Turnover

Net Contribution

Sales

Sales

Assets

Assets

Assets

Assets

Assets

X

Divided by...

Divided by...

+

+

+

Return on Assets Managed

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Personal, organizational, and environmental variables

Role perceptions

Aptitude

Skill Level

Motivational level

Behavior/ performance

Relevant selling activities

Type of sales job

Effectiveness

Organization’s goals and objectives

Sales Behavior, Performance and Effectiveness

McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. 1.1 - Examples from Bank & Insurance Company Dr Arthur Lin *Associate.

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