Bachelor of Business Administration

(B.B.A.)

BBA - 305

SALES MANAGEMENT

Directorate of Distance Education

Guru Jambheshwar University
HISAR-125001
 CONTENTS

Lesson No. Lesson Name Page No.

1. Introduction to Sales Management, Defination 3

Concepts, Objectives, Functions

2. Personal Selling, Sales, Sales Activities & Tasks 25

3. Planning for Selling Effort : Demand Measurement, 43

Sales Forecasting, Measuring Market and Sales
Potential and Market Share

4. Sales Territories 65

5. The Sales Organisation 83

6. Recruitment and Selection of Sales-Force 95

7. Sales Training Programmes : Aim, Methods 110

and Evaluations of Sales Training Programmes

8. Motivating and Compensating Sales Personnel 128

9. Sales Budgets and Quotas 151

10. Controlling Sales Efforts 174

 LESSON : 1

INTRODUCTION TO SALES MANAGEMENT,

DEFINATION, CONCEPTS, OBJECTIVES,
FUNCTIONS

The initial days of industrial revolution saw dramatic changes taking place
in the overall functioning of business organisations. The task of selling the
goods was no longer a simple exercise as meeting of the buyer, and seller
at a marketplace and carrying out the exchange. The businesses grew big and
the goods were manufactured at a large scale and were not sold out in small
areas where the manufacturer could personally sell them. At this stage the
marketing department evolved, which served as a link between the buyer and
the seller. In the process of marketing, the people who carried out the activity
of making the product available to the customers had to function in a different
set of circumstances that could not be managed in the way the other departments
of the company were managed. So, the business organisations evolved a
separate department that came to be known as sales department and the
process of managing this department as sales management. The definitions
and concepts are further elaborated herein.

Sales Management

Originally, sales management refers to the direction of sales force i.e. the
people associated with the activities of selling. With time, the term acquired

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a broader meaning. In addition to management of personal selling, sales
management meant management of all marketing related activities such as
advertisement, sales promotion, marketing research, physical distribution,
pricing and product merchandising. However, it was pointed out these activities
are primarily carried out by the marketing department of a company and there
was a need to clearly define the purview of sales management. Finally,
American Marketing Academy agreed that sales management means the
planning, direction and control of personal selling, including recruitment,
selection, equipping, assigning, routing, supervising, paying and motivating
as these tasks apply to personal task force.

The above definition defines the purview of sales management as activities

related to the management of sales force. However, in actual practice, the
activities of sales managers are much wider. So, some academicians are of
the view that the activities of sales managers can be classified as sales
management and management of sales force. The activities concerned with
personal selling are sales management, while the activities of managing
those carrying out the activity of personal selling may be called as sales
force management. The sales managers organise the sales activity both
within the organization and outside the organization. In the company, the
sales managers build both formal and informa1 organisations to ensure
effective communication in the sales department as well as other departments
of the company. Outside the company, the sales managers build key contacts
with the customers and publics to ensure a smooth personal selling.
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Salesmanship

The term salesmanship has been defined in various ways. Some of the definitions
of salesmanship are :
a. Salesmanship is the art of persuading persons to buy goods or
services, which will give them lasting satisfaction.
b. Salesmanship is the art of helping prospects and customers achieve
their goals in life.
c. Selling is a buying process wherein the salesman ascertains the
customers’ needs and indicates convincingly how the needs can be
satisfied through the purchase of goods and services.
d. Salesmanship is the art of solving the customers’ problems through
the benefits offered by the products or services being sold by the
salesman.

The work of a salesman can best be described in one single word as service
i.e. helping the customer to get most from the he pays to acquire a product
or service. A skilled salesman is the one who devotes time to solve-the
customers’ problems because more often the customer is looking for a
solution to his problem when he buys a product. He might not be even aware
of his needs. It is here that a good salesman helps a customer in purchasing
what will solve his problem. The salesman persuades feelings to action or
evidence that convinces reason and judgement.

Objectives

The most important functions of sales management are :

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a. Sales volume
b. Contribution to profit
c. Continuing growth

The prime responsibility of the sales department is to build up higher volume

of sales. This higher volume of sales leads to greater production in the
factory and the company achieves the economies of scale. This helps in
reducing the costs and making the products of the company more competitive
in the market. This leads to the automatic achievement of the other two
objectives that is increase profits and continued growth of the company.

The top management, delegates the responsibility of achieving the sales

objectives to the marketing department that ultimately directs the sales
department to carry out activities in order to achieve them. The sales managers
thus play a key role in the company because the entire growth of the company

depends on their ability to achieve the stated objectives. The sales managers
also carry out the important task of the appraisal of market opportunities
and convey the same to the company. This helps in designing the products
which customers would like to posses. This helps the company in achieving
greater customer satisfaction and hence greater growth in sales. The forecasts
made by the sales department serve as the basic outline for carrying out the
entire planning of the company.

Various roles of sales force

In a company, the sales force has to cover a broad range of position. The
actual nature of the role and the position may vary with the company; still

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some of the roles played by sales force are as under :

1. Deliverer

In many cases, the role of sales persons is mainly to deliver the products
to the customers. This type of role is often played in companies selling milk,
bread etc where the product is of generic nature and it is the availability of
the product that decides the selling of the same. Even in soft drinks, the
available product sells and the sales personnel have the main task of delivering
the product. In the present age of Internet, most companies are offering the
facility of placing orders by the Internet. In such companies, delivery of
product is of prime importance and the sales personnel have to undertake
them.

2. Order taker

In some cases, the sales persons may be the order takers and the delivery
of the product may be made by the dealers or through courier. In such cases,
the salesmen visit the customers, show their products, and persuade the
customer to purchase them. They book the orders and convey it to their
distribution department or their dealers. This practice is common in companies
selling consumer goods. The salesmen visit the shops and book orders and
convey them to the dealer who delivers them to the customers. This bifurcation
of delivery and order collection activity is done so that the sales person can
devote more time in understanding the customers and the market activity.
Also, the sales person might be working in a wide territory and the delivery
is done the distributor’s representative.

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3. Missionary

In certain cases, the salesmen are not directed to book the orders or deliver
them. Their main task is just to build goodwill and create a favourable attitude
in the minds of the customers. They might also be directed to educate the
potential customer. In such cases, they act as missionary i.e. making market
calls with a broader mission and not merely booking orders. Medical
representative visiting doctors and informing about their products plays such
a role. They do not book orders but educate the doctors about their products
and the benefits they offer. This practice allows sales person to visit and
service customers in a large territory.

4. Technician

In certain cases where the product is technical in nature, the sales personnel
may have to act as a technical consultant and not merely focus on booking
orders. This activity is witnessed in the companies making plants and equipment
that involve high technical knowledge on the part of the seller as well as the
purchaser.

5. Demand creator

Often, the sales personnel have to stimulate the demand by product

demonstration or customer education. E.g. the demand of vacuum cleaners
was actually created by the salesmen by visiting the customers. Similarly,
the role-played by insurance agents by educating the customers helps them
in selling the insurance policies.

Tasks performed by sales force

The nature of tasks performed by the sales personals vary from company to
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company depending upon the objectives laid down for them. For example
the sales representatives of IBM are responsible for not only selling the
computer but also for its installation and upgradation. Similarly the sales
representatives of AT&T are responsible for developing, selling and protecting
accounts. In addition to the difference in company objective, other factors
such as state of economy, market orientation of a company etc. also determine
the nature of tasks performed by sales force. In general the sales personal
perform the following tasks :

1. Prospecting

The sales force has to be on the look out for new customers always. The
customers have the prospect of purchasing must be identified and persuaded
to purchase the products of the company. The new customers serve as a base
of growth of sales volumes and so they need to be-identified and converted
from a prospect to a customer.

2. Communicating

The sales force has to skillfully communicate the information about the
companies’ products and services. In fact communication is one of the single
most important function which is performed. The communication is both
within the organistion as well as out side the organization. Within the
organization, the sales representatives have to take instructions from marketing
and sales managers. They convey order collected form the customers to the
distribution department so that it can make the delivery. The sales representatives
also communicate with the accounts department of the company in order to
ensure that the timely collection of payments is made. In case a complaint

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is received from the customers, the sales representatives have to communicate
the same to the technical personnel in production and quality control department.

Outside the department, the sales representatives have to meet the customers,
distributors, retailers and all those who affect the selling activity directly
or indirectly. They collect orders and payment. In addition to this, one of
the important tasks of sales representatives is to communicate market
intelligence i.e. the activities of the competitors so that the senior managers
can formulate strategies to face the competition. Thus, communication is
one of the single most task performed. The successful sales representatives
have to master the art of communication.

3. Selling

This is the core function of the sales representatives because all the activities
must ultimately culminate into sales. The sales representatives have to very
skillfully master this art of approaching the customers, presenting their
product, convincing them about the benefits of the products over the competing
products, answer the guarries and objections of the customers. The sales
representatives have to learn the art of negotiations and closing the deal. The
order thus collected must be conveyed to the company. The responsibility
of selling does not end here. The sales persons have to ensure product
delivery and customer education.

4. Servicing

The task of sales force does not end after taking the order. The customers
have to be visited again in order to resolve their difficulties or complaints.
In case the product is not performing well, the sales representatives have

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to get the same repaired. It is also possible that the customer will have to
be educated about using the product. The sales people find it easier to sell
their products, to the existing customers. So, once a relationship is established
between the sales person and the customer, it has to be strengthened with
the help of services.

5. Information gathering

The sales personnel have to gather the information about the customers and
the market conditions and report the same to the company. The market
information helps the company in fighting competition. The information
about the customers helps the company in identifying customer needs and
designs the products, which the customers want. This helps the company is
getting an edge over the competitors.

6. Allocating

The sales representatives have the first hand information of the market
conditions. So, their opinion is significant in distributing or allocating the
products to the customers at the times when the product is in short supply.

Sales Management functions

The functions of sales managers are much wider than the tasks of sales force
as mention above. The diagram 1 explains some of these functions.

Sales programming

The sales programming functions refer to the functions associated with

planning in order to develop sales programme. This starts from understanding
the top management’s strategies and policies that form the blueprint for the

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functioning of the entire organization and sales is no exception. On the basis
of these, the sales plans are formulated and the blueprint of the activities
is prepared in order to execute these plans and policies. During the process
of formulation of plans, a mechanism is built in to facilitate evaluation and
control of the plans. This is a continuos process that keeps on providing
inputs by way of feedback for innovations in the system for improvement.

Sales organization

The sales organization function consists of four sub functions : personnel

direction, sales direction, sales control and cooperation. Personnel direction
functions are essentially personnel management functions of recruitment,
selection and training of sales force. The compensation packages are designed
so as to continuously motivates sales force to achieve higher and higher sales
volumes. Designing right employment conditions, which facilitate functioning
of sales team, are covered under this category of functions. It must be noted
that although these are essentially personnel functions, but they are performed
by the sales managers because of the unique requirements of sales department.
The traditional principles of compensation and governance of sales force do
not give fruitful results. So, they are not within the purview of the personnel
department.

Sales direction functions are the activities facilitating maximum output from
the sales force. The sales force once recruited has to be allocated territories
wherein they have to function. The routing of their territories is done to
reduce costs and exercise maximum control on the sales team. The sales
team is informed about the products, the expected sales targets that they are
to achieve and the nature of reporting desired out of them. Providing office

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support to the sales team is also an important function of sales direction.
The sales force is also given exposure of training through seminars etc.
Finally, a periodic review of performance is done at the conferences and
meetings. The experiences of various sales force members are exchanged
so that there is a mutual sharing of knowledge.

Sales control is one of the important functions because the sales team
operates in the field, far away from the direct supervision. So, adequate sales
control has to be exercised so that the employees do their work sincerely.
The control is exercised through review of sales performance; reports and
other indicators lay down by the sales managers. These can be sales budgets,
sales expenses etc.

Finally, sales team has to achieve synergies through cooperation and coordination
with other departments and general management. The coordination as a
function of sales team will be described in detail subsequently.

The product functions

The product functions include development, setting price and other sales
terms and physical handling of products. The sales team contributes a lot to
product development by way or providing the feedback to the R&D department.
They inform them about the needs and wants of the customers so that the
products can be designed accordingly. The sales team suggests standardization
of features. Once a product is developed, it is tested in the market by the
sales team before it if finally launched into the market. This saves the costs
and significantly reduces the chances of product failure in the market.

The sales team is in direct touch with the market and the customers. So, it

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is best informed about the price that the customers would be willing to pay.
Also, the sales force can apprise of the prevailing market conditions and
suggest the price, which will make the product, compete in the market. The
sales force also advises the company about launching the gift schemes, sales
promotion offers etc. The innovative finance schemes such as hire purchase
or consumer finance schemes are suggested to the top management so that
a greater sales volume is achieved.

The sales team invariably cannot escape physical handling of the products.
They are the interface between the customers and distribution department.
So, they have an important role in planning and allocation of the inventories.
While the logistics other departments, sales team’s directions. are used to
control them, handle functions.

The market functions

The market functions include the activities performed in the marketplace and
include marketing research, feedback about competition, distribution and
relationship building with customers and all those engaged in influencing
sales functioning. In many companies, marketing research may not be a
separate department. So, the sales team has to perform this function. Even
if there exists a marketing research department in a company, sales department
has to do the basic job of providing information of the customers’ needs so
that the R&D team can develop products as demanded by the customers. The
sales team finds out the market potential and trends etc. and provides the
required feedback. For routine flow of information, sales team is an important
linkage in the management information system (MIS). It must be noted that
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marketing research seeks information for specific problems while routine
information flows in the normal MIS. The sales department also provides
the information regarding competitor activity so that the sales department
can formulate strategies to face the competition.

Business development functions

The sales team has to contribute to the activities leading. to business development.
Such activities include advertisement, promotion, publicity etc. They provide
the basic information on the basis of which the strategies pertaining to
branding, advertisement budgeting, product campaigns etc. are designed.

Salesmanship : an art or science

Often, the suffix “ship” is added to denoting persons and signifies skill or
art, e.g., craftsmanship, horsemanship etc. These persons have the fundamental
knowledge of the skill or the craft and salesmanship is no exception to this.
He invariable has a thorough knowledge of his profession and uses innovative
ways and means to achieve his objectives. The art of approaching a customer,
opening, negotiating and closing a deal has no standard format. The salesman
masters this skill through his knowledge, experience and ingenuity. The
skillful use of communication that is both verbal and non-verbal contributes
a lot to the success of a salesman. He is an artist who paints a mental picture
with a verba1 brush. Art is the way of making knowledge more efficient by
exercising the skill.

Science is a systemized knowledge arranged under general principles of

truth. Over a period of time, the techniques of salesmanship have evolved.
The generalisations for facing specific situations have been documented and

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practiced so that those engaged in the profession of sales can face the
situations. This support of systematic body of knowledge makes salesmanship
a science. In practice, salesmanship can neither be called as a pure science,
nor can be it termed as a pure art. Infact it is a combination of the two which
imparts the skills for successful salesmanship.

Approaches to build customer contact

The sales representatives can approach a customer in various ways as described

below :

1. Sales representative to buyer

In this method, the sales representative approaches the customer individually.

The customer is usually contacted in person for the first time and subsequently
the communication over phone/fax or email may be used. In this case, there
is one to one contact of the sales representative and the customer. Such an
approach is used in departmental stores and the companies engaged in direct
marketing. It is the most preferred approach in case of industrial or institutional
selling wherein one to one contact is essential I order to negotiate a dea1.

2. Sales representative to buyer group

In this method, the sales representative makes a presentation to a group

of buyers. This method is particularly used in rural marketing wherein
the sales force goes to a village and demonstrates the products to a group
of persons collectively. This method is more cost effective, especially
when the cost of approaching an individual customer is high. The limitation
of this method is that it might be difficult in collecting the prospectina
customers at one place.

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3. Sales team to buyer group

In this method, the team of sales persons makes the presentation to the
customers or their group. The sales team usually consists of people from
marketing department as well as technical people. This method-is particularly
used by advertising agencies that visit the clients in a group and make
presentations to give their ideas, about their advertisement campaign. This
method is particularly useful when the product is technical in nature that
needs the help of more than one person in convincing the customers. Also,
in case of advertisement agencies, this approach is useful because the group
of persons is usually more effective in highlighting the benefits of a campaign.
Moreover, different members provide their specialized answer to the quarries
of the client.

4. Conference selling

In this method, the sales representatives often bring various resource persons,
organize a conference, and discuss problems and mutual opportunities. The
forum of conference is used to sell the products.

5. Seminar selling

In this method, a seminar is organised, which is often educational in nature.

The persons visiting that seminar are informed about the relative benefits
of the products and are convinced to purchase the products.

Designing the sales force

The tasks and functions of sales representatives as well as sales managers

to have been described at length earlier. The general principles of two core

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functions of sales management i.e. designing and managing sales force can
be defined in a sequence as shown in the diagram 2.

Designing
sales force
→ → → → →

Managing
→ → → → →
the sales

Diagram 1 : Steps in designing and managing the sales force

Sales force objectives

The sales force objectives are based on the corporate objectives and the
characteristics of company’s target markets. Based on the two, the sales
managers decide the targets and plans to be achieved over a period of time.
The planning is done keeping in view the available resources at the disposal
of the company. The objectives of sales force are not in isolation, infact they
are integrated with the objectives with production targets, marketing plans,
advertising and sales promotion budgets etc. The objectives serve as the blue
print of activities for the sales department for future course of action.

Sales force strategy

Based on the objectives, sales department formulates the strategies and plans
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achieve these objectives. The sales managers decide the level of inputs to
be provided by the field force through various options of selling such as
direct sales, contractual sales etc. The companies also design the role of
sales team, whether they have to act as missionary, order taker, deliverer or
to provide customer support and service.

Sales force structure

Based on the above stated steps i.e. objectives and strategy, the sales managers
design the basic structure of sales force. They anticipate the number of field
personnel required to carry out he planned strategies. Various options can
be exercised while designing the structure. The structures can be made on
the basis of territory, product, markets or combinations of them. In territory
based structures, the sales force is organised on the basis of territories. The
sales representatives operate at field level and are supervised by area managers
and regional mangers. The sales representatives have to sell all the products
of the company in a given territory. They have to fulfil the sales quotas, which
are assigned to them. The disadvantage is that sometimes products cannot
be focussed because the sales team has to sell a large number of products.
To take care of this problem, some of the companies design their sales force
on the basis of products. There are separate teams for selling different
products in the same or different territories. This method is effective but
is expensive. In the market based structure, the sales force is trained to serve
different markets. The complex structures use combinations of these to be
used when a large number of products are to be marketing in diverse markets.

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Sales force size

Most companies use the workload approach to decide upon the size of sales
force. The customers are grouped into size classes according to their annual
sales volume and the desirable call frequencies are established for each class
and the annual sales calls are determined by multiplying the number of calls
with the number of accounts (customers). The average number of calls that
a sales representative can make is estimated and on this basis the number
of sales personnel required is estimated. In case companies employ other
methods of sales force structure; the sales force size will vary. The sales
force size also varies with the nature of territory. E.g. in far-flung areas, the
number of field person required may be large as compared to that in a metro
city.

Sales force compensation

Various options have to be tried for designing the salary structure of sales
force so that the sales force is motivated to face the challenge of sales
growth. Some of methods used are flat salary, flat salary with variable
commission and salary with incentives. In the first method, the sales team
is given a basic salary irrespective of their performance. However, this does
not motivate the sales team to work more. So, often companies provide sales
related incentives in addition to the basic salary. This motivates the field
force to achieve higher and higher volumes of sales. In the third type of
salary structure, the sales team is provided with performance linked incentives.
Companies also have a system of straight commissions wherein no base
salary is provided and the sales representatives earn commission on the sales
they bring for the company. Perks form an important component of

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compensation of the sales force and often they are linked to the performance
of the sales force.

Managing sales force

After establishing the objectives on the basis of sales strategy, the company
has to carry out the activities of managing sales force. These activities that,
basically involve management of sales force are explained herein.

Recruitment arid selection

The recruitment and selection of sales force is an important function of the

sales force. Due to different nature of job of sales department, sales managers
do recruitment, although the personnel managers provide the basic rules and
regulations. The structure of sales force is expressed in terms of number
of sales persons required and the qualities such as qualifications and experience
they should possess. Based on this, recruitment is done through advertisements
in print media and Internet, consultants’ etc. Out of the available candidates,
the best are selected by way of predecided criteria.

Training

Often, the sales team selected is given an orientation or training in order

to familiarise with the company products and the sales strategies. It is after
the training that they are sent to the field. Training of old employees also
forms an important function because of the fact that the sale teams operate
in a changing market and their skills have to be updated continuously to face
the challenges arising out of the change. Various methods are used for
training such as orgainsing seminars, hiring consultants, role-playing, simulation,
programmed learning etc. Each has its own merits and demerits and is

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selected on the basis of the objectives to be achieved from the training
programmes.

Directing sales teams

The selected and trained sales representatives are subjected to direction and
supervision. The nature of direction and supervision varies greatly with the
relationship they have with the company and the salary structure they have.
In case they work on commission basis, the supervision is less, if they work
on salary basis, they are often subjected to close supervision. Various criteria
are evolved for supervision depending on the nature of company. Usually the
sales representatives are directed in terms of customer targets and call
norms. They are also directed about using the sales time efficiently. Direction
also includes controlling their expenses and their adherence to the planned
activities.

Motivating sales teams

Sales representatives are found to work more efficiently in case proper

incentives and rewards motivate them to work more. So, the sales managers
have to design the incentives and rewards that motivate the sales representatives.
In case the rewards are common, they fail to motivate because they are
perceived as a regular compensation and may not result in achieving the
higher volume of sales. The incentives may be financial rewards such as
bonuses or incentives for achieving or surpassing the sales targets. They can
also be holiday tours or special privileges. The sales teams can be motivated
by higher order rewards such as recognition, respect, and sense of achievement
also. The ideal sales manager understands his team and designs the rewards

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that motivate the team because the same reward may fail to motivate one
set of employees while may motivate others.

Evaluating the sales representatives

Since the sales representatives operate largely in the field, their evaluation
is possible only by a reliable information systems that updates the management
about what they are doing and what is their progress towards achieving the
assigned results. The information I obtained through the daily call reports,
activity plans, sales achievement figures, reports from the markets, wholesalers
retailers and even the customers. Besides this, their performance parameters
in terms of sales achievement, call reports, expense reports, adherence to
their plans etc. are established and their actual performance is measured
against these parameters. The comparisons between the sales persons are
also done with the star performers serving as benchmarks for others. The
past performances are also taken as a base for evaluating past performance.
Depending on the performance appraisal and evaluation, the suitable
compensation is awarded to the sales representatives.

The above classification of sales management functions is indicatives and

varies greatly with the nature of the organization. In the present competitive
markets situation, the eventual success of a company largely depends on the
performance of the sales teams. So, this function is receiving its due importance.
It might be noted that sales management is more action oriented activity of
marketing and this aspect calls for devising management techniques that can
contribute to achieving the desired results at optimum costs.

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Review questions

Q.1. “Sales management is the core activity of marketing.” Critically analyse

the importance of this statement.

Q.2. What is salesmanship? Do you call salesmanship as a science or an

art? Briefly explain various roles played by a salesman.

Q.3. What are various tasks performed by a sales representative?

Q4. Explain the various steps of designing the sales force?

Q.5. “Sales management is basically management of the sales force.” Do

you agree with this statement? Give reasons in support of your, answer.

Q.6. Sit at the shop of a retailer for one day and study the activities of the
salesmen visiting the retailer. Try to relate the activities with the
concepts described in the lesson.

References :

1. Sales Management decisions, strategies and cases by Coundiff , Still

& Govani

2. Marketing Management analysis, planning implementation and control

by Philip Kotler

3. Salesmanship and publicity by Rustom Davar & Nusli Davar

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 LESSON : 2

PERSONAL SELLING, SALES ACTIVITIES

& TASKS

Introduction

In the competitive market place, it is important that the product is communicated

across to the customers. Traditionally, advertising is the tool for communication.
However, as the competition has increased, the process of communication
has also become more and more complex. The marketers of today cannot
rely in only advertising infact, the marketing communication mix comprise
of 5 modes of communication as explained herein :

1. Advertising :

Any paid from of non-personal presentation and promotion of ideas,

goods, or services by an identified sponsor.

2. Sales promotion :

A variety of short-term incentives to encourage trial or purchase of

a product or service.

3. Public relations and publicity :

A variety of programmes designed to promote or protect a company’s

image or its individual products.

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4. Personal selling :

Face to face interaction with one or more prospective purchasers for

the purpose of making presentations, and answering questions, and
procuring orders.

5. Direct marketing :

Use of mail, telephone, fax, e-mail or internet to communicate directly

with or solicit & direct response from specific customers and prospects.

The present chapter deals with person-al selling as one of the modes for
selling. The topic falls within the scope of both marketing communication
and sales management. Personal selling is the most effective tools, especially
at the later stages of buying process. It is very useful in building buyer
preference, convictions and action. Personal selling has three distinctive
qualities :–

(i) Personal confrontations :

Personal selling involves an immediate and interactive relationship

between two or more persons each party is able to observe the other’s
reactions at close hand.

(ii) Cultivation :

Personal selling permits all kinds of relationships to spring up, raging

from a matter of fact selling relationships to a deep personal friendship.
Sales representatives usually have customer’s best interests at heart.

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(iii) Response

Personal selling makes the buyer feel under some obligation for
having listened to the sales talk.

Principles of Personal Selling :

Personal selling is more of an art. Often effective sales persons have an

instinct. Yet, it is realised that proper training can enhance the skills of good
salesmen. In present times, personal selling is becoming more and more
customer oriented be cause no more do are have a buyer’s market. Three
major aspects of personal selling are :

i) Professionalism

ii) Negotiations

iii) Relationship marketing

(i) Professionalism :

The belief that good sales are born is giving way to professional approach
to the sales activity. The sales managers realise the importance of training
of the sales force and spend huge sums of money each year for the same.
We find the market flooded with training aids comprising of books, video
and audiocassettes, CD’s and many more. The aim at sharpening the skills
of a salesman to make him more and more effective.

All sales training approaches try to convert a sales person from a passive
order taker into an order setter. An order taker is passive and is dominated
by the situation. An order getter moulds the situation in his favour and takes
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charge in order to achieve his objectives. The modern professional approach
to salesmanship is customer oriented. The act of selling is projected as
aimed at solving the problems of the customers. Such an approach is satisfying
the customers more there by making sales activity more and more effective.
The sales personal are trained to understand the situation and them formulate
their reaction because no single approach works in all situations.

(ii) Negotiation

Negotiation skills are one of the most important skills of a salesman. The
two parties need to reach agreement on price and other terms of sales. A
good salesman wins the order without making deep .concessions that will
hurt his profitability. Also, he must not unduly extract the customer because
such as approach will be detrimental in long run. This process of exchange
by way of negotiation is more of an art. Learnt by salesman over time.

The professional approach to negotiation identifies the zone of agreement

between the seller’s surplus and buyer’s surplus. Such an understanding helps
in reaching at the agreement point where both the parties feel satisfied.
Negotiation involves communication that is focussed and planned.

A good salesman understands his customer well and then formulates a negotiation
strategy.

(iii) Relationship marketing :

As the salesman becomes close to the customers, the transactional nature

of the selling approach gives way to the relationship approach. The transactional

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approach is deal to deal approach centered on short-term gains. The relationship
approach is long term and establishes a relationship between the buyer and
the seller. Both understand each other and support each other.

Sales managers have realised that it is far easier to get sales from an old
customer as compared to getting the same from a new customer. So, it is
important to retain the existing customers. Personal selling is the most
effective method of building relationships. No other means can establish
relationships as effectively as personal selling does. So modern salesmen
work with long-term prospective, establishing close customer associations.
Such a practice is most evident in banking, airlines, insurance and investment
industries.

Major steps in effective selling :

While it is established that no single approach to selling works, in all

situations, still a generalisation can be drawn and the major steps in effective
selling can be identified as under :

1. Prospecting and qualifying Pre approach

2. Pre approach

3. Approach

4. Presentation & Demonstration

5. Overcoming objections

6. Closing

7. Follow up and maintenance

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 Exhibit 1 : Steps in effective selling

1. Prospecting and qualifying

The first step is selling is to identify and qualify prospects. Traditionally,

the task of identifying the prospect rests with the salesman. Nowadays, with
the advances in information technology and software like CRM, companies

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can establish direct relationships with the customers. Thus, the task of
identifying prospect .is shared and it makes the job of salespersons more
focussed. The prospective customers are contacted and then sorted according
to the level of interest and financial capability. The salesman can personally
visit those customers where the chances of success are more. Four main
steps in prospecting are :

i) Formulating prospect definitions :

This means defining the prospects according their financial capacity

and the interest to purchase. This helps in segmenting the prospects
into the categories where chances of selling are more. This makes
the selling activity more targeted.

ii) Searching potential accounts :

After segmentation, the prospects are analyzed with respect to probability

of selling. This may involve an exploratory visit to the prospects or
contacting them over phone, man or Internet. This further narrows the
focus area of the sales reps

iii) Qualifying prospects and determining probable requirements :

After having identified must probable prospects, their requirements

are studied so that salesman can actually design a negotiation strategy
that fulfils the prospect’s needs. This increases the probability of the
success of a sales call.

iv) Relating company products to each prospect’s requirements :

The final step is to integrate both the customers and sales rep so that
higher success is achieved with fewer efforts.
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2. Pre approach :

Pre approach is the activity of sales persons to learn as much as possible

about the prospect. This helps in identifying the factors that play an important
role in buying decisions making process. Once a sales person is familiar with
the factors that are important from the point of view of a customer, he can
design his approach strategy accordingly. The chances of success increase
with the details of information. Sales persons go to the extent of knowing
the time, place, cultural habits and language of their customers. This helps
them to step into the customer’s shoe. This activity helps in saving resources
and increases the chances of success.

3. Approach :

The manner in which a sales person approaches the prospect has a lot of
effect on the chances of success of a sales call. As it is said, first impression
is the last impression, the sales person should know how too great the buyer
to get the relationship off to a good start. The dressing, manner and etiquette,
language, politeness and persuasiveness have a lot of effect on the success
of a sales call. The right approach comes from the degree of proximity with
the customer. Proximity in terms of knowing the customers is very important
and nowadays more and more companies are doing the same.

4. Presentation & demonstration :

After approaching a customer, the sales person narrates the story of his
product. The underlying scheme of presentation is often based on AIDA
model i.e. gaining attention, generating interest, arcossing desire and obtaining
action. Different styles of sales presentation are used, as described herein.
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i) Canned approach :

This the oldest approach wherein a sales, person memorizes, the sales
talk covering the main points. It is based on stimulus-response thinking
i.e. the buyer is passive and can be moved to purchase by the use of
the right stimulus wards, pictures, terms and actions.

ii) Formulated approach :

It is also based as stimulus-response thinking but first identifies the

buyer’s needs and buying style and then uses a formulated approach
to this type of buyer.

iii) Need Satisfaction approach :

It starts with a search for the customer’s real needs by encouraging

the customer to do must of the talking. The sales person takes on the role
of a knowledgeable business consultant hoping to help the customer save
money or make money.

The sales presentations can be improved with demonstration aids such as

booklets, flip charts, slider, movies, audio and video cassettes, product
samples and computer based simulations. Computer aided presentations are
also very useful means. Usually, presentation is followed by leave behinds
such as brochures, leaflets, samples etc.

5. Overcoming objections :

There arise objections to all the presentations because of psychological

resistance. It is very important to resolve them. Infact, objections are the
starting point of communication that might transform to negotiation and

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finally action. So, they must be encouraged as they can have a positive effect
on the sales call if they are resolved.

6. Closing :

The manner of closing a sales call is as important as approach. Closing leaves

behind an impression, which has a long term, carryover effect. Unconfident
sales persons fail to ask for order rendering the entire sales call fruitless.
So, the process of winding up of a sales call must incorporate persuasive
phrases and actions that not only effect purchase but also help in carrying
a long term effect in the mind of the customer.

7. Follow up and maintenance :

.In order to ensure repeat business, follow up and maintenance are very
important. After closing a sales call, the sales person should not break
contact with the customer. Sustained contact helps in getting business next
time. It also helps enhancing customer satisfaction and reducing cognitive
dissonance. It also provides the feed back to the company for improving the
quality of products and service in future.

SALES ACTIVITIES & TASKS

In the present items, several developments have taken place that affect the
operation of business activity and sales management is no exception. At the
onset of industrialization, sellers used to dominate the market. Hence the
prime function of sales force was order collection and timely delivery. With
the onset of competition, sales personal could not get the orders with ease
and had to supplement him, activities by focussing around the customers’

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needs. There arose a need for a greater coverage of the markets and each
customer required personal attention. So, personal selling activities dominated
the scene whereby sales person’s prime job was to push the sales by luring
the customers. The luring act could involve personal meetings, long business
talks and use of sales promotion measures. The needs of the customers were
not the prime concern and it was important to sell the product to the customers.

The current trends of globalization and technological advances, particularly.

The advances in information technology have changed the way he business
done. The distinction between marketing and selling as slowly being reduced,
infact the two activities are merging into one. A salesman starts from the
customer by identifying customers needs and then designs the product mix
suiting the specific needs of a customer. Hence, the scope of sales management
involves marketing tasks as well. For the purpose of simplicity, the function
of sales management can be divided into administrative, operating and staff
functions. Each of these involves the activities as shown in the table

Exhibit 2 : Tasks and functions of a sales manager

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Administrative functions :

Just as proper management and administration is a must for the success of

any organization, sales managers have to perform certain administrative
functions that facilitate the running of the of the department. The administrative
functions establish the frame wash for smooth running of the department.
The frame wash comprises of management functions such as planing, organizing,
directing and control.

1. Sales policies :

Policies are guiding principles set by the company to govern usually repetitive
or routine actions. Sales policy provides a basic guide to thinking and action
taken by the executives within the sales organization under a given set of
circumstances. A comprehensive sales policy assures the success of any
business. The backbone of successful sales policies is customer satisfaction
and customer goodwill, based on reputation for reliability and fair trade
practices. It is important to ensure that the sales policy supports other
missions, policies and objectives of marketing department and the organization
as a whole.

2. Sales planning :

Planning is choosing from alternative courses of action is a prime managerial,

function. It involves the selection from among several alternatives, enterprise
objectives, policies and procedures, programmes and schedules. Sales planning
is a part of marketing planning, covering sales forecasting, sales programmes
to achieve sales goals, and making a sales budget sales planning decides in
advance, the future course of action regarding the marketing or selling of

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the product. After formulation of the broad marketing objectives and plans,
the course of action is drafted in measurable terms about how a goal is of
sales is to be achieved. Sales planning saves the resources and achieves
greater results in a given set up.

3. Sales Organization :

Sales organization involves separation and grouping of sales activities and

fitting in persons to carry out their activities. Relationships based on authority,
responsibility and accountability are established between them. Sales
organization is very important because persons carry out all plans and activities
and if an organization is rightly designed, lot of-advantage is achieved in
facing the competition. There can be no fixed organizational structure and
it depends on many factors such as the corporate objectives, resources,
business environment etc.

3. Direction and motivation :

Supervision, which comprises of both direction and motivation involves :

a) Observing, monitoring and reporting the performance of sales force.

b) Counseling and watching sales force to remove defects and weaknesses

in their performance.

c) Giving them adequate information regarding company plans and polices

and charges in these policies.

d) Receiving feed back and solving their business & personal problem.

e) Motivating the sales force through appropriate non financial incentives

in order to give there people a sense of achievement.

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The sales manager has to be very innovative while supervising sales force
unlike other departments, sales personal do no work in an office or a plant.
They work in the field. So, adequate measures must be incorporated in
reporting so that they actually work and achieve the desired objectives.

4. Coordination :

Coordination is one of the prime functions of sales department because it

has to depend heavily on others for its functioning sales people have to
collect orders and ensure delivery. They have to coordinate among the
customers and the-factory. At factory they have to ensure timely dispatch
of the material. Also, they have to coordinate with production department
to ensure adequate inventories of the finished goods. Also, they inform the
production department about the needs and customers so that they can make
the product that value aspirations of the people. Sales department has to
coordinate with accounts department to ensure timely receipt of the payment.
With a large number of factors affecting success of a sales manager, the task
of coordination is very challenging and requires lot of tactfulness.

II. Operative Functions

The operative functions are the functions performed by the sales department
that concern with its operation various operative functions are described
herein.

1. Recruitment :

Recruitment is motivating and peoples to apply for the job. Sales

manager has to depend on his team for getting sales. Since this job
is highly dependent on the personal traits of the sales representative,

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 it is very important to ensure that good, hard working and energetic
people join the organization. Recruitment is a long-term process
involving the activity of building good company image, laision with
campus, consultants, placement agencies etc. A judicious mix of in
house and outside talent ensures that good people are inclined to wish
for the company.

2. Selection :

Selection means choosing the best persons for employment in the

company from among the reservoir of prospective candidates. This process
can involve a series of tasks, group discussions, personal interviews etc. A
nicely designed selection process ensures that right people join the organization.
Since the sales terms cannot be changed very frequently, the process of
selection is very crucial for both long terms as well as short term profitability
of an organization.

3. Training :

After selecting the right people, it is important to integrate them with

the company objectives. This may require same initial orientation
programme, on the job-training etc. Not only the fresher, it is important
to train even the existing staff as well to periodically sharpen their
skills. Since the market position changes very frequently, it is very
important that the sales team is trained to face the fluid even changing
situation around them. Training may be through seminars group
discussions, games, role plays, case studies etc.

4. Territory allocation and routing :

Since sates team works in the market place, the sales managers are

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 faced with a difficult task of allocating the territories to the sales
force. The territory has a lot of effect on achievement of results. If
the territory is too vast, the sales persons may not be able to cover
the same. If the territory is too far flung the sales persons may waste
a lot of time in traveling. Similarly, small territory would be wasteful.
If there is imbalances territory allocation, the morale of sales teams
is adversely affected because of if effect on performance appraisal.
The companies, depending upon their needs, resources and the shape
of territory use various methods of territory allocation.

5. Controlling :

The sales team does not work in a closed area such as office or a plant.
So it is very important to devise ways and means to control them.
Companies have to rely on daily cell reports. Sales performance and
market feedback. The right kind of control begins at the storage of
planning control should not finding faults, but it must mean identifying
the reasons of not achieving the results. A positive control boosts the
morale and helps in achieving the pre laid objectives.

6. Physical distribution :

A sales person’s job does not end after taking the order. He has to
ensure the delivery of goods to the customers. Often physical distribution
is taken care by the plant and sales team has to coordinate with them.
However, in some cases the sales team might have to deliver the
goods themselves. As the competitions increasing, more and more
companies are moving out to reach their customers and physical
distribution is becoming more and more important.

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III. Staff functions

The staff functions mean the support-functions that are performed to help
the time functions that are directly working towards achievement of company
objectives. The important staff functions are explained herein.

1. Marketing research :

The sales personal are in direct touch with the customers. They are
best aware about their needs and aspirations. Hence, they are the best
source of information for conducting marketing research. This support
is gives to marketing department who in turn gives, to the feedback
to the production people and ensure that the goods and services are
as per the needs of the customers.

2. Advertising :

Advertising persuades customers to buy the products. The sates team

acts as a booster to the effect of advertisement. They can also help
in designing advertisements suiting the aspirations of the people.

3. Sales promotion :

Sales department is the only tool of implement sales promotion

schemes. They ensure that the schemes are passed on to the customers
and the channels of distribution do not keep the promotional schemes
to themselves. Effective implementation of sales promotion helps in
achieving the sales targets.

4. Merchandising & product development :

The activity of merchandising and product development needs the

vital support of the sales department. They provide the information
and other necessary inputs required to carry out this activity.
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5. Sales analysis & performance appraisal :

Correct analysis of sales helps in knowing the strengths and weaknesses

of the company. If a company is able to perform well it must know
its strengths and if it is not able to perform well in the market place.
This helps or taking the necessary corrective action and hence achieve
the objectives.

6. Channel Management :

Although distribution is often described as the task of logistics

department it cannot function with the participation of the sales
department. The sales team helps in building congenial relations between
the channel members that are very essential for the success of a
company. Even the activity of warehousing, transportation etc. can be
made more effective and useful with the help of sales department.

Questions :

1. What are various elements of communication mix? Explain the

importance of personal selling in communication mix.

2. What are various steps in effective selling?

3. Explain various operative functions of sales department.

4. What are various staff functions of sales department? Why should the
sales team perform these staff functions?

References :
1. Sales Management-Still, Coundiff & Govani,
2. Marketing management- Philip Kotle

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 LESSON : 3

PLANNING FOR SELLING EFFORT :

DEMAND MEASUREMENT, SALES FORECASTING,
MEASURING MARKET AND SALES POTENTIAL
AND MARKET SHARE

Planning is one of the most important activities of management and sales

management is no exception. It is the planning that serves as the basis for
all other management functions; Planning helps in anticipating the future by
the environmental appraisal and helps in appropriate resource allocation so
as to achieve optimum realisation of objectives. Planning of sales has its
effect on not only the functioning of sales management, but affects the whole
organization. The anticipated level of sales helps the company in production
planning, purchasing, and planning for funds and finally the profit resulting
from the business activities. Thus, planning for sales effort serves as a
blueprint for the entire organization. This makes planning one of the most
important activities for the company and any errors in sales planning can cost
the company heavily. So, management takes all the care by using the all
available tools and techniques for accurate sales planning. Before discussing
the methodology of sales planning, it is necessary to define and understand
certain frequently used terms in marketing and sales planning.

Potential Market

The potential market is the set of customers who profess some level of
interest in a defined market offer. For example, a company wants to measure
the potential market for its product say motorcycles, it will try to estimate

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the number of people who have even the slightest interest in purchasing the
motorcycles. The number thus arrived at will give an idea about the maximum
possible units that cal) be sold in a defined market. This is available to all
the manufacturers or service providers.

Available market

However, the number of people having an interest to purchase a product may

not imply the sales volume that the company will be able to achieve. The
number of customer who not only have an interest to buy a product but also
have the ability to buy the product is more important. For example, there
might be students who have lot of interest to buy motorcycle but do not have
the money to buy the same. While they will be counted in potential market
estimate, they are of no use to the company. The desire and interest must
be backed by the ability to buy a product. Also, customers’ accessibility to
a product is important because even the customers having interest and availability
to buy may not be able to make purchases if the product is not accessible
to them. For example, there might be many people who are interested to have
internet connection, they also have the money to buy the same; but the
internet service providers cannot access them because no telephone line$
are available. So, these set of customers are not of any use to the company.
Consider another case, many people would be interested to buy books from
www.amazon.com (bookshop on Internet) but they do not have the credit
cards to make the payment.

In both the above cases, the potential market is far greater than the actual
available market for the company. Thus, available market may be defined
as the set of customers who have interest, income and access to a particular
market offer.
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Qualified available market

In certain markets, some of the customers might be restricted to the sales

of particular product. So, they need to be deducted from the available market.
For example some countries may ban sale of motorcycle to people less than
18 years of age. So, they need to be excluded from the estimates of available
market. The number of customers who are actually qualified to make purchase
are known as qualified available market. They have interest, income, access
and qualifications for a particular market offer.

Served market

The company might not plan to serve the entire qualified available market
and might like to concentrate on only a few market segments. The part of
qualified potential market is known as served market. For example .Internet
service provider like Mantraonline, Glide or Dishnet do not serve the
markets of Haryana. So, for them the served market constitutes only the
qualified market of Delhi and/or Chandigarh where they provide-their services.

Penetrated market

The penetrated market is a set of customers who have already purchased the
product. In a market, there might not be only one company operating. The
competitors also operate in a market and they might have sold their product
to some of the customers that form the penetrated market. For example,
when Satyamonline is planning to enter Haryana, the customers who already
have the Internet connection from VSNL or Palcom constitute penetrated
market i.e. the market that has already been penetrated.

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Market demand

Market demand for a product is the total volume that would be bought by
a defined customer group in a given geographical area in a defined time
period in a defined marketing environment under a defined marketing
programme.

There are eight elements of this definition as described here in :

• Product. Market demand measurement requires defining the scope of the

product class. A tin-can manufacturer has to define whether its market
is all metal-can users or all container users. It depends on how the
manufacturer views its opportunities for penetrating adjacent markets.

• Total volume. Market demand can be measured in terms of physical

volume, dollar volume, or re1ative volume. The Indian market demand for
automobiles may be described as 10 million cars or Rs. 1000 crores. The
market demand for automobiles in the New Delhi area can be expressed
as say 2.5 percent of the nation’s total demand.

• Bought. In measuring market demand, it is important to define whether

“bought” means the volume ordered, shipped, paid for, received, or
consumed. For example, a forecast of new housing for the next year
usually means the number of units that will be ordered, not the number
that will be completed (called housing starts).

• Consumer group. Market demand may be measured for the whole market
or for any segment(s). Thus a, steel producer may make separate estimates
of the volume to be bought by the construction industry and by the
transportation industry.
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• Geographical area. Market demand should be measured with reference
to well-defined geographical boundaries. A forecast of next year’s passenger
automobile sales in Haryana will vary depending on whether the boundaries
are limited to Haryana or include Chandigarh also.

• Time period. Market demand should be measured with reference to a

stated period of time. One can talk about the market demand for the next
calendar year, for the coming five years, or for the years 2000. The longer
the forecasting interval, the more tenuous the forecast. Every forecast
is based on a set of assumptions about environmental and marketing
conditions and the chance that some of these assumptions will not be
fulfilled increases with the length of the forecast period.

• Marketing environment. Market demand is affected by a host of

uncontrollable factors. Every forecast of demand should explicitly list
the assumptions made about the demographic, economic technological
political, and cultural environment. Demographic and economic forecasting
are well developed. Technological forecasting is coming into its own, but
political and cultural forecasting are still in their infancy. Much interest
in the whole subject of predicting future environments is being stimulated
by futurists. At the same time, Levitt has cautioned : “The easiest kind
of expert to be is the specialist who predicts the future. It takes only two
things : imagination and a good command of the active verb.”

• Marketing program. Market demand is also affected by controllable

factors, particularly marketing programs developed by the sellers. Demand
in most markets will show some elasticity with respect to industry price,
promotion, product improvements, and distribution effort. Thus a market

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 demand forecast requires assumptions about future industry prices, product
features and marketing expenditures.

Since demand varies with the above stated variables (there can be even more
number of variables according to a specific situation), total market demand
is not a fixed number, but is infact a function and is often rightly called as
market demand function or market response function. The following figures
show the variation of market demand as a function of industry marketing
expenditure in particular and two different environments. It may noted that
some minimum sales (called market minimum) would continue even when
no industry expenditure is made. Increase in the industry marketing expenditure
yields an increase in the market demand, first at an increasing rate and then
at a decreasing rate. After a point, any more increase in industry yields no
further ncrease in market demand. This point is known as market potential.

The distance between market minimum and market potential is known as

marketing sensitivity of demand. It must be noted that market demand
function is not a picture market demand over time. Rather, the curve shows
alternative current forecasts of market demand associated with alternative
possible levels of industry marketing effort in the current period.

Market Forecast

The market demand corresponding to only one level of industry marketing

expenditure is known as market forecast. For example in the earlier figure,
the market demand at a given point of expenditure will be called as market
forecast. Since market demand is a function of many variables, in order to
arrive at a forecast, these variables have to be defined and the market demand
corresponding to these defined sets of variables is market forecast.
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Market potential

As clear from the figure, the market demand increases with the increase in
the industry expenditure. This increase is at an increasing rate and then at
a decreasing rate. As the expenditure rises, there is no further increase in
the market demand. Thus, market potential is the limit approached by market
demand as industry marketing expenditures approach infinity, for a given
environment. Since the demand changes with the change in marketing
environment, the market potential can be defined only in a given set of
circumstances. For example in the recessionary trend O market, the market
potential will be low as compared to a boom period, even for the same level
of industry expenditure.

Sales potential

Some authors use the term the term sales potential as a subset of market
potential representing the maximum number of sales opportunities open to
a specified company selling a good or service during a stated future period.

Company demand

The company demand is the company’s share of market demand. For example,
in a given environment for a given industry expenditure if the market demand
of automobile industry is say 1.5 lac cars per annum and the share of Maruti
is 45%, then the company demand is 67500 cars. Mathematically, company
demand (Qi) can be expressed as under :

Q i = S i. Q
Where Si = Company i’s market share
Q = Total market demand

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Company forecast

The company forecast is the expected level of company sales based on a

chosen marketing plan and an assumed marketing environment The company
demand represents the company’s estimated sales at alternative levels of
marketing efforts. The management chooses one of the levels of industry
expenditure and the company demand corresponding to that level is known
as company forecast.

Sales quota

The sales quota is the sales goal set for a product line, company division
or sales representative. It is a primary managerial devise for defining and
simulating sales effort. The management sets sales quotas on the basis of
company forecast and psychology of stimulating its achievement. Generally,
sales quotas are set higher than estimated sales to stretch the sales force’s
effort.

Sales budget

A sales budget is a conservative estimate of the expected volume of sales

and is used for making current purchasing, production and cash flow
decisions. The sales budget considers the sales forecasts and the need to
avoid excessive risk. Sales budgets are generally set lower than the company
forecast.

Company potential

The company potential (also called company sales potential) is the limit
approached by company demand as company-marketing effort increases
relative to competitors. In many cases, company potential (also called sales

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potential, described earlier) is less than the market potential because no
company has the power and resources to attain 100% market share.

ANALYSING THE MARKET POTENTIAL

The market potential can be analysed by following three steps :

1. Market identification

2. Market motivation

3. Analysis of market potential

Market identification

Before the market potential can be estimated, it is important to identify the

markets. The sales professionals need to answer the following questions :

1. Who buys the products?

2. Who uses it?

3. Who are the prospective buyers and/or users?

The answers to these questions can be sought from the company’s internal
records or by the help of marketing research. While there may be no formal
research project for this purpose, the information generated from the marketing
channels and other sources can be used as inputs. The marketers of consumer
goods identify the buyers, users and prospects and classify them according
to various characteristics such as age, sex, education, income and social
class. In case of the industrial marketing, the buyers, users and prospects
are identified and classified according to the variables such as size of the
company (user), geographical location, type of industry etc.

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The identification of market helps in knowing the differentiating characteristics
of the company’s products and the variables that affect consumer behaviour.
The analysis of data thus collected helps in estimating the market potential.

Market motivation

The next step for analysing market potential is to detect the reasons why
customers buy the product and reasons why the potential customers might
buy it. The process of market motivation answers the following questions :

1. Why do people buy?

2. Why don’t people buy?

The answer to these questions gives an additional information about the

likely success or failure of marketing inputs and promotional schemes.

Market potential analysis

After the market identification and market motivation, market potential is

analysed. Often direct estimate of market potential is very difficult because
it is practically not possible to count the number of customers and prospects
in a given market. So, often the use of indirect market factors is made. A
market factor is a key feature or characteristic related to the product’s
demand. For example, the demand for automobiles in a given market may
not be directly proportional to the number of people; their income level,
education and nature of profession may be the key variables that decide
whether the people purchase cars or not. The marketers have to identify and
study these variables in order to arrive at market potential. However, in
addition to this, the market segments that do not contain Prospective buyers
of the product need to be eliminated to arrive at a correct market potential

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estimate. For example if a sales executive wants to estimate potential for
mid size cars in Punjab and Haryana, he might have to eliminate the rural
customers who may not purchase the product despite the fact that they have
the income to buy the same. There might be other variables affecting their
purchase decision. The process of analysing market potential is a two step
process as under :

1. Selection of market factors that are associated to the demand of a

product

2. Elimination of those market segments that do not contain prospective

buyers of the product.

DEMAND ESTIMATION

The process of demand estimation can be divided into two parts namely :

1. Estimation of current demand

2. Estimation of future demand (Sales forecasting)

The sales professionals have to know both-the types of demand because the
current demand helps in planning for short term and the future plans are based
on the sales forecasting. Even the current sales serves as a basis for planning
for the company. Both types of methods of demand measurement are described
in the following pages.

ESTIMATION OFCURRENT DEMAND

While estimating current demand, the following are estimated :

1. Total market potential

2. Area market potential

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3. Total industry sales
4. Market shares

Total market potential

Total market potential is the maximum amount of sales (in units or in value
terms i.e. rupees) that might be available to all the firms in an industry during
a given period under given level of industry marketing effort and given
environmental conditions. This is estimated commonly by the formula :

Q = nqp

Where Q = total market potential

n = number of buyers in a given market under given conditions

q = quantity purchased by an average buyer

p = price of an average unit

When the sales managers have detailed data, they can make use of complex
formulae such as chain ratio method. This is a complex method and entails
study of all possible variables that are likely to affect the sales potential and
study their interrelationships in order to arrive at a final formula.

Area market potential

The companies often have to identify the sales territories that will give them
more returns for the efforts and other inputs. In that case, they have to
estimate area market potential, which is measured by the following methods :

a) Market buildup method

b) Multiple factor index method

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Market buildup method

This method attempts to identify all potential buyers in each market and
estimates their potential purchases. The problem with this method is that
practically, the information of potential buyers and their likely sales is not
available. So, often companies use indirect methods by estimating the market
potential by studying the variables that affect the same.

Multiple factor index method

This method uses the indirect variables, called as indices, which can be used
to estimate the level of total market potential. For example, Hindustan
Levers may assume that the consumption of its soap say Lux is directly
related to the population. If the company wants to find out how much will
be the contribution of Haryana to its sales, it will measure the population
of Haryana with respect to total population of India and then estimate the
likely contribution of Haryana Assume that Haryana has 1.5% of the total
population of India, Hindustan Lever can assume that the state will contribute
1.5% to its total sales in the country. In practice, such simple variables are
not chosen. Infact, a multiple variables are chosen, their significance is
estimated, and the weights are assigned in order to arrive at meaningful
estimates.

Further suppose that Punjab National Bank finds that level of deposits in a
territory (say Haryana) are related to two variables i.e. population and income
and income has double the effect than population, then the total market
potential will be estimated by the formula Q = P + 2 I

Where P = population of Haryana

I = Average income level of population of Haryana
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ESTIMATION OF FUTURE DEMAND

The estimation of future demand is one of the important functions in a

company. The planning of the entire operations of the company are based on
the accuracy of the forecasting of demand. Correct demand forecast help
in formulating production plans, procurement of raw material and also the
allocation of financial resources. Forecasting also helps in estimating the
human resource requirement of a company. The correct estimation of future
demand has a wide spread effect determining the overall profitability of the
company. The methods for demand forecasting are diverse, arranging from
crude to highly sophisticated. The commonly used methods for estimating
the future demand are :

1. Buyers survey

2. Opinion survey of composite sales force.

3. Expert opinion (Delphi method)

4. Projection of past sales

5. Market test method

6. Statistical demand analysis

7. Econometric model building and simulation.

Buyers survey

This is the simplest and the most logical approach to estimating future sales.
The buyers i.e. the prospective customers are asked about their future buying
plans on the basis of which the sales managers can estimate what the likely
sale shall be in future. This method is particularly useful in case of industrial
marketing and the marketing of consumer durables. Its advantage is its
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simplicity and reliability. It is also useful when the company operates in a
limited geographical area. It is the method of choice in case of ancillary units
estimating future demand on the basis of the future demand of their buyer.

However the limitation of this method is its being impractical when

the customer base of a company is quite large. In such a situation, it is
practically very difficult for the sales manager to take the opinion of a
majority of their customers and then make estimates of their future demand.
Another major drawback of the system is that it is based on the assumption
that the buyers plan is once made are not likely to be changed. This is an
unrealistic assumption particularly in a dynamic business environment in
which we are living. This method is also likely to have measuring, sampling
and non-sampling errors.

This makes it less popular method for estimating the future demand.

Opinion survey of composite sales force

Since the opinion of the customers is not practically feasible in all situations,
most companies use indirect methods of determining future demand. Since
the sales force operates in the market, they can best estimate the future
trends of the markets and thus forecast the sales. So, some companies rely
on the opinion of the composite sales force, although their estimates are
not accepted directly. The opinion of sales force is often believed to be
biased because it might be either to optimistic or too pessimistic. The reason
is that in case they want to show high performance, they might give higher
targets that might not be the realistic estimates of future sales. So, the
opinion of the sales force is accepted after some corrections. Still, the
estimates of the sales force provide a useful estimate of territory wise sales,

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customer wise estimates, product wise estimates etc. Such a data is not
otherwise possible to be estimated. Usually the companies use this method
in conjugation with other methods such as statistical analysis or opinion of
experts.

Expert / Executive opinion (Delphi method)

In this method, the opinion of the top executives or the experts who can
analyse the market and give their comments is taken as a basis for estimation
of the future sales. The experts may be dealers, distributors, suppliers,
marketing consultants, trade associations etc. They are the people who keep
a close watch over the market situations and can judge which shape the
market will take in the future and thus give their opinions. In certain cases,
the experts jury may be called in for a group discussion and the final decision
arrived at from their discussion is taken as the estimate of the future sales.

This method basically consists of two steps; in the first step, the high-ranking
executives and experts estimate the sales and in the second method, an
average of their opinions is calculated.

The advantages of this method are its ease and speed. The people who pool
their opinion are well informed and their judgement can be takes as reliable.
In new companies who do not have much market experience, this method is
a cost-effective alternative. This method can be used even in absence of
adequate sales and market statistics. Another advantage of this method is that
results can be arrived at easily, without much statistical or mathematical
analysis.

Rand Corporation, for predicting the future developed Delphi technique

several years ago. In this technique, a panel of experts responds to a
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sequence of questionnaires in which responses to one questionnaire are used
to produce the next questionnaire. The information available to some and not
to other experts is disseminated to all, enabling all to base their final forecasts
on all available information. In a way, this method encompasses the majority
opinion of a panel of experts.

Projection of past sales

The historic data generated on the basis of the past performance serves as
a useful basis for estimating the future sales. This projection can be used
in various forms. In the simplest form, the sales forecast for the coming year
is taken as equal to the last year’s sales. Some companies may add a fixed
percentage as a growth rate the want to attain. Some companies also use the
average of last few years’ sales as a basis to arrive at the future sales
estimates. The companies using this method believe that the future sales will
invariably have some relations to the sales performance achieved in the last
years. The projections can be based on some advanced techniques as under :

a) Time series analysis

b) Exponential smoothing

c) Evaluation of past sales projection methods

Time series analysis

Time series analysis is a statistical procedure to estimate the future sales

on the basis of past projections. This procedure involves isolating and measuring
four chief types of sales variations namely the long term trends, cyclic
changes, seasonal variations and irregular fluctuations. Then a mathematical
model describing the past behaviour of the series is selected, assumed values

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for each type of sales variation are inserted acute sales forecast is made.
This method is particularly useful for long range forecasts. The disadvantage
of this method is that it does not appreciate the changes in the business
environment and would mathematically arrive at the forecasts on the basis
of the past cycles of boom and recession.

Exponential smoothing

This is also a statistical technique particularly useful for short term forecasts.
Exponential smoothing is a type of moving average that represents a weighted
sum of all past numbers in a. time series, with the heaviest weight placed
on the most recent data. Often this technique is used in association with the
time series analysis- in order to achieve both long-term and short-term sales
forecasts.

Evaluation of past sales projection methods

In the methods described above, the major limitation is that the changes due
to change in business environment, competitor activity of other reasons are
not considered, So, the pragmatic approach is that the allowances are made
for such developments also. Suitable corrections are made to the sales
estimates when the market is near saturated or in situations when the market
is rapidly growing. The past sales projection methods are used appropriately
for obtaining “heck forecasts” against which forecasts secured through other
means are compared. Most companies make use of past projections in their
sales forecasting procedures. The availability of numerous computer
programmes for time-series analysis and exponential smoothing has increased
the practice of using this method.

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Market test method

This is an experimental method and is used when the buyers do not plan their
purchases carefully or are very unpredictable in carrying out their intentions.
Also, when insufficient market data is available and the experts are not able
to provide an accurate forecast, this method is used. Usually, this method
is used while the launch of new products or when the companies start their
activities in a new territory. The estimates for first time sales, replacement
sales etc. are made and the total sales are projected on the basis of data
gathered. This method not only gives the sales projections, but also provides
cues of consumer behaviour as well. The limitation of this method is its
being slow and expensive Also, an error in the selection of test market may
affect the results. There is a vast scope of sampling errors. If these are
rectified, then elaborate techniques have to be used making the method quite
difficult to use.

Statistical demand analysis

Statistical demand analysis is a set of statistical procedures designed to find

out the most important real factors affecting sales. This technique also
attempts to find out the relative influence of these real factors. Unlike time
series analysis, which takes only the historical data is the basis for calculating
sales projections, this method considers numerous other factors that might
be operational in reality in affecting demand. The factors most commonly
analysed are price, income, population and promotion. Statistical demand
analysis expresses sales (Q) as a dependent variable and tries to explain it
as a function of a number of independent demand variables X1, X2... Xn etc.

Mathematically, Q = f (X1, X2 .... Xn)

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Using the technique of multiple regression analysis, various equation forms
can be statistically fitted into the data in the search for best predicting
variables and equation. The demand equations are derived by fitting the best
equation to the historical or cross sectional data. The coefficients of the
equation are estimated accordingly to the least; squares criterion. According
to this criterion, the best equation is the one that minimises the sum of
square deviations of the actual from the predicted observations. The equation
can be derived through the use of standard formulae. With other things being
equal, the closest equation is selected as a basis for projecting the sales.
The advantage of this method is its reliability and dependence on a larger
set of variables. The limitation is the difficulty in identifying the variables
and gathering data about the. Also, the method may be more useful in long
term sales projections as compared to short-term sales projection. This
method has become popular and easy with the advent of computers for data
computations and the regression analysis required for this method.

Econometric model building and simulation

This is considered a very useful method, as useful as sales projection, by

the companies making consumer durable goods. This approach uses an equation
or system of equations to represent a set of relationships among sales and
different demand-determining independent variables. Then, by plugging in
values (Le. estimates) for each independent variable, the sales projections
are made. This method involved simulation the total situation for sales
forecast. Unlike statistical techniques like regression analysis, econometric
model is based on an underlying theory about relationships among a set of
variables, and parameters are estimated by statistical analysis of past data.

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An econometric sales forecasting model is an abstraction of a real world
situation, expressed in equation form and used to predict sales. For example,
consider the following sales equation for a durable good :

S=R+N

where S = total sales

R = Replacement demand

N = New owner demand

The total sales of durable goods may be assumed to consist two components :
purchases made to replace units that have been scrapped and purchases by
new owners. Thus, a person having a five-year old machine will use it for
part payment of a new machine and will become a part of replacement
demand. The replacement demand is measured by several methods, the use
of life expectancy table being most common. Constructing of econometric
model primarily consists of three steps. Firstly, independent demand variables
affecting each demand category (new or replacement) are identified and
those bearing a logical relationship to sales are chosen. Secondly, the
combination of independent variables that correlates best with the sales is
detected. Thirdly, suitable mathematical expression to show the quantitative
relationships among the independent and dependent variable and sales is
chosen. This expression becomes the econometric model.

Econometric model building technique is an ideal technique since it considers

the interaction of independent variables that bear logical and measurable
relationships to sales. Also, it uses regression analysis techniques to quantify
these relationships. The econometric models are best suited for forecasting
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industry sales instead of forecasting sales for individual competing companies.
Most companies use it to forecast the industry sales and use their market
share in order to project the sales of their companies.

Questions

1. Explain the concepts of potential markets, available market, qualified

available market, and served market.
2. Distinguish between market potential, sales potential and company
demand. What is the difference between market potential and potential
market.
3. Explain the methods of buyers’ survey, composite sales force opinion
survey and Delphi method. What are the relative merits and demerits
of each of them.
4. Differentiate between statistical analysis techniques and econometric
model building techniques of sales forecasting.

References :

1. Sales Management decisions, strategies and cases by Coundiff , Still

& Govani
2. Marketing Management analysis, planning implementation and control
by Philip Kotler
3. Salesmanship and publicity by Rustom Davar & Nusli Davar

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 LESSON : 4

SALES TERRITORIES

The task of assigning the sales territories to the sales representatives has
a significant effect on the functional efficiency of the sales department. The
sales representatives do not work within the boundaries of the organisation.
For them, working at the market place is the prime responsibility. In case
the territories are not assigned by clear planning, there is likely to no control
over the activities of the sales representatives. Also, in case the territories
are too large or too small, the performance is bound to be affected. In case
the nature of the territories is not homogenous, the comparison of the
performance of the sales representatives becomes difficult. With this background
of the difficulties that can arise in case of unplanned territory allocation,
it is of prime importance that the managers plan the territories of the
companies very carefully.

Sales territory : the concept

The territory can be defined in terms of the size of the area in which the
sales representatives operate as well in terms of the number of customers.
Operationally, it is better to define the sales territory as a grouping of
customers, and prospects assigned to an individual sales person. This
definition lays more stress on the customers and prospects in an area instead
of the size of the territory. A company might prefer to keep more sales
representatives in a densely populated metropolitan city and keep a few sales
representatives in an area with a lesser density of the customers and prospects.
E.g. Daewoo Motors selling Matiz and Cielo cars would prefer to keep more
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sales representatives in Delhi and might keep only a few sales representatives
in the entire state of Haryana or Himachal Pradesh, although in terms of the
size the states are much bigger. It is the number of the customers as well
as the prospects who are likely to decide the sales volume that can be
achieved by a company and not the geographical area. The prospects represent
the sales potential that can be useful for the company in future. As the
companies start their marketing operations, they usually start with appointing
the sales representatives in the potential areas and increase the number of
sales representatives in the underrepresented area. This might call in for
increasing the number of sales representatives in the territories. In cases
when a single account is very large and is responsible for a significant part
of the sales of a company, them a single representative might not be assigned
this important client but it might be handled by a group of executives from
the head office. Such a client (often called as account) is known as house
account.

PURPOSE OF ESTABLISHING SALES TERROTORIES

The task of setting up sales territories is a continuous process and in constantly

updated or revised keeping in view, the changes that occur in the marketplace.
The sales territories are primarily set up to facilitate planning and control
of sales operations. In specific terms, the reasons of establishing the sales
territories can be stated as under :

Proper coverage of market

In the present competitive world, the market coverage is the key to gaining
competitive advantage. The opportunities of the marketplace cannot be wasted

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and allowed to go into the hands of the competitors. So, the competition,
to provide adequate coverage of the market. In the present age of competition,
it is the sellers market and, not the buyers market. It is not expected out of
a customer to wait to purchase the product. So, the companies have to make
themselves available to the customer so that the customer can purchase the
product. The ease in making the company accessible to the company is called
as the spatial convenience, which in itself is acknowledged as a part of
customer service.

However, it is important to note that mere design of territories to cover the

markets should not be the only aim. The territory design should facilitate
the operational working and study the feasibility of establishing the territory,
keeping in view the costs of sales in that areas and the likely returns to make
the sales a profitable venture in that area. A good design will facilitate a sales
representative in spending more time in servicing the customers and reduce
the time in non-productive activities such as travelling. The territory design
must match with the sales programmes to achieve better coordination of the
operation of the sales department as a whole.

Controlling the sales expenses

While sales department is a major source of returns to the company, it is

also a major cost centre because of the investment and the costs incurred
in achieving the sales. The territory design has a key role to play in controlling
the sales expenses. In case the territories are too small in terms of numbers
of customers and prospects, the sales representatives achieve the sales at
a greater cost. The limit to the number of customers would not allow the
sales to grow beyond a point and the overhead expenses would increase the

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cost of sales. Similarly if the territories are large in terms of number of
customers, it might not-be possible for the sales representative to be able
to contact all of them. This would result into loss of some opportunities for
the company. If the sales territories were too large in terms of physical size,
the cost of sales would mount because of the greater traveling expenses and
less of productive time spent with the customers.

The sales representatives have to report to their area sales managers and
regional managers. So, an error in the territory design would affect their
organization structure also that thereby adding to the sales expenses. Thus,
the territory design has to be optimum to achieve the maximum sales at the,
lowest possible costs to increase the profitability.

Facilitating evaluation

The sales representatives are evaluated for their performance so that they
can be adequately compensated. In order to achieve a fair evaluation, the
sales representatives must have an equal platform for evaluation. The well
designed sales territories facilitate their evaluation. The territories must-be
so designed that they can be considered as homogenous for comparing the
performance of the sales representatives. It is noteworthy that the nature of
duties of the sales representative does not allow their performance evaluation
in the manner in which the functionaries of other department of the company
are evaluated. The sales representatives do not have fixed duty hours, nor
do, they have well furnished offices or work premises. So, for their evaluation,
all these factors have to be kept in view. Territory all9cationfacilitates
evaluation and hence leads to more satisfied employees. The sales of a
company are affected significantly in case the sales representatives are not

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satisfied from the compensation. It is the personal relationship that the sales
representatives develop in the market that helps them in getting the sales.
Consequently, if a sales representative leaves an organization, the new person
has to develop the relations to get the same level of sales. So, the managers
have to devise ways and means that keep the managers going to achieve their
targeted sales.

Contributing to morale of sales force

As explained in the previous point, correctly designed territories facilitate

evaluation of the sales representatives When the sales representatives feel
that they are getting their due reward for their efforts, they feel motivated
to achieve higher levels of sales performance. Their commitment to the
company increases and their morale i.e. their drive increases.

Coordination

The territories help in achieving the coordination between personal selling

and advertisement. If left alone, both of them cannot be an effective means
to achieve higher sales. It is their combined effort, which can achieve the
sales objectives. By the allocation of territories, the specific requirement
of each area can be studied and the advertisement and the sales promotion
scheme can be designed accordingly. These customized approaches helps in
servicing the customer in-a better way and thus gain more sales. E.g. A
company can divide the Indian states as territories and study the requirements
of the customers of each state. Each state will have its different language
and may require different sales promotion campaigns. Correctly formed
territories will reduce the wasteful expenditures into unproductive sales
promotion schemes and adopt a more effective and targeted approach.
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STEPS FOR TERRITORY DESIGN

The steps for designing the sales territory very with the nature of business
operation. For example the principals followed while designing the sales
territories would be very different in case of FMGC companies like Hindustan
Levers, P&G etc. in comparison to consumers durable companies like Maruti,
BPL etc. Still some generalisation can be drawn regarding the steps for
setting of the sales territory :

(i) Selecting a basic geographical control unit.

(ii) Estimating the sales potential in control units.

(iii) Designing tentative territories from control units

(iv) Adjusting for coverage difficulty and redesigning the territory.

Selecting a basic geographical control unit.

The stating point in the planning of the sales territories is the basic geographical
unit. The commonly used geographical control unit in India is the district
or the state. In case of metropolitan cities, the territories are allocated as
per residential/business localities. Some of the other bases of selecting a
control unit are Zip code numbers (practiced in U.S.A.), cities, trading areas
etc. While selecting a control unit, it is preferable to keep them small and
allocate them on the basis of geographical proximity in order to facilitate
the sales operation subsequently. Such an allocation of territories also facilitates
readjustment of territories at a later stage. The various basis of geographical
control units are further-described herein :

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Countries

The firms operating in multinational markets divide their markets on the

basis of the countries. The countries can be assumed to be homogenous
markets, although large countries need to be further subdivided into smaller
territories. However, the companies in the initial stages of multinational
marketing find it most convenient to divide their market on the basis of
countries or even groups of countries such as Middle East, Far East, Europe,
South Asia etc.

States

For the firms operating in India, state is considered to be a very convenient

geographical control unit. The companies might even use groups of states
and call it and region. The region shall be further divided into the states and
then the states further divided if necessary to districts under the area sales
managers with sales representatives operating in the smaller towns. E.g.
Cipla Ltd. A major pharmaceutical company has 22 regions in the country,
each comprising of one or more states. Similarly, most companies divide
all India sales operations into five regions. namely North, South, East, West
and Central India. Each region consists of a group of states.

Districts

With the increased competition, the companies have to formulate territories

much smaller than the states because they have to increase their reach. For
this purpose, the district serves as a logical basis for division into territory.
However, most companies divide the districts according to their convenience

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and may not adhere to the administrative districts as formed by the government.
E.g. Shahbad, although comes under district Kurukshetra, most companies
count it as a part of the territory of Ambala district because the stockists
of Ambala visit Shahbad while those of Kurukshetra do not. So, the sales in
Shahbad are not counted into the performance of Kurukshetra district and
are counted as the sales performance of Ambala district. Analogous to
districts, American companies use Zip code as a basis for making the territories.
Zip code contains area that can be counted as one homogenous market.

Metropolitan cities

Metropolitan cities comprise of a large population in a relatively smaller

area. The population in Delhi is, almost equal to that of the state of Haryana
although in terms of area it is very small. So, in case of metropolitan cities,
the localities are divided depending on the basis of the number of customers
and prospects living in an area. Usually, the people living in a locality can
be taken as a fairly homogenous in terms of their income levels, education
and consequently consumer behaviour. So, they can be taken as one territory.
E.g. people of Greater Kailash and Nehru Place localities in Delhi can be
taken as one territory while those living, in Janakpuri and Vikaspuri can be
taken as another territory. Similarly, people living across river Yamuna can
be taken as another territory. The economic level, education, occupation etc.
in these localities is likely to be homogenous. White the first is a posh
locality, the second one may be taken as middle income class 1ocality and
the third as a lower income locality. The companies can allocate the resources
to these territories and achieve their sales targets.

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Territory allocation on the basis of product

In certain cases, companies are resorting to allocating territories on the

basis of products. E.g. Cipla Ltd. Has representatives promoting specialised
products such as anti asthmatic and cardiac range of products in addition to
the representatives selling the regular antibiotics and anti inflammatory
.products. The representatives promoting specialised products are assigned
special territories, exclusive of the regular territories. There might be
representative selling cardiac products only in Punjab and Chandigarh while
the other may visit the doctors only in Haryana and Delhi. With the ever-
increasing product lines of companies, this basis bf territory allocation is
also becoming quite popular.

Estimating the sales potential in each control unit

Once the basis of a control unit is established, the sales potential of each
control unit is estimated. The sales potential is estimated not only in the
present terms but also the future terms by estimating the number of prospects
in a sales territory. For this, the customer profile must be defined and an
estimate of the number of customers is made. Caution must be exercised
to estimate of the number of target customers and not vaguely defined
individuals. E.g. a company (say Revelon) marketing cosmetics has to estimate
not the number of women in a territory but the women who have the capacity
to purchase their premium range of cosmetics. So, they would be. interested
to estimate the population of the number of women in the upper middle class
society whom they would target in their marketing strategies. Thus, the
territories must not be looked upon merely in terms of the geographical area
and population, but in terms of the potential customers who can actually be

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useful to the marketers. Such an estimate may be possible, in those situations,
an indirect estimate about the size of markets must be made by measuring
the variables that have a direct correlation with the market size. E.g. the
campany selling paints may not be able to estimate the number of people
who will get their houses painted in the next year, but the estimate of
population may be an indicator of the likely sales. In a populated area, the
sales are likely to be more as compared to a sparsely populated area.

Having conducted the exercise stated above, the companies estimate the
marketing potential. The next step is to estimate the sales potential by
analyzing the historical market shares within each control unit. The changes
required (if any) in the strategies and marketing practices are studied before
arriving at any conclusion. Having estimated the sales potential of the control
units, the territorial planner identifies those territories that have substantial
sales potential to justify sales-coverage. In case the company plans to have
mass caverage as its strategy, then all the territories are cavered irrespective
of the sales potential. However if the company plans far a selective caverage
of markets, then the territories have to be selected an the basis of the sales
potential. This is the practice preferred during the initial launch stages of
the products ar in case the companies are marketing industrial products.

Designing tentative territories from control units

The control units are combined to be converted into the tentative territories.
The territories are always subject to change, so they have been termed as
tentative. As a first exercise, contiguous control units are designated as
territories, each containing approximately same sales potential. The number
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of sales persons required are estimated by dividing the sates potential and
the average sales that can be realised by an individual sales person. Historic
data and competitor information serve as useful basis in making such decisions.
For example, .assume that the management estimates that an average sales
person can realise a sale of Rs. 25,000 and the sales potential of Haryana
is Rs. 2,50,000. The management will have to divide Haryana into ten territories
and appoint ten sales representatives in order to achieve the sales targets.
In practice, while every effort is made to keep the, territories homogenous
in size, such figures present lot of practical difficulties. So, the sales potential
of a territory is often expressed as the percentage of sales potentials of the
total market.

Designing the shape of territories

The shape of the territories affects the selling expenses as well as the
efficiency of the sales person. If the territory shape permits a sales person
to spend minimum time on the road and more time in meeting the customers
it results in more productive time and hence better achievement of target.
This also contributes to increasing the morale of the sales persons. Three
types of shapes are most commonly used; the wedge, the circle and the
clover leaf territories. There shapes are as shown in the figure.

The wedge shape territory is appropriate when it contains both rural as well
as the urban areas. The urban areas are situated in the middle of the wedge
and the sides of the wedge protrude in the direction in which the rural
markets are spread. Wedges can be in m-any sizes. The travel time along the
adjoining wedges can be equalised by balancing urban and non-urban calls.
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The circle shaped territory is appropriate when the customers (accounts) are
evenly distributed throughout the area. The sales person assigned to circular
shaped territory is based at some point near the centre, making for greater
uniformity in frequency of calls on customers and prospects. This also
makes the sales persons nearer to more of the customers than is possible
in a wedge shaped territory.

The cloverleaf is desirable when accounts are located randomly throughout

the territory. Careful planning of call schedule results in each clover leaf
being completed in a week or a fortnight in order to facilitate the completion
of one touring cycle of the sales representative. The sales representative can
report to his head quarter after the completion of one tour cycle. Usually
home base of the sales persons assigned to the territory is near the centre.
Cloverleaf territories are more common among consumer market and among
companies cultivating the markets extensively rather than intensively.

Adjusting and redesigning the territory

The final step is to adjust the tentative-territories by adjusting them for

coverage difficulty. The tentative territories should be so designed that each
territory contains approximately the same sales potential. However, it must
be accepted that even the territories with nearly equal sales potentials require
different selling efforts. They also differ in the selling expenses also. The
unrealistic assumptions are removed so that no differences in the characteristics
of geographical control units exist. Significant differences in physical and
other characteristics make the sales coverage more difficult for some control
units than for others.

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For example, certain large cities like Delhi have greater sales potentials for
most products than some states such as Haryana or Punjab. However, the
time required to contact customers and prospects in cities is much less, and
the same is true in case of selling expenses. The optimum territorial arrangement
is reached when incremental sales per dollar of selling expenditures are
equated among all territories. In working toward this ideal, both sales potential
and coverage difficulty are taken into account. As the planner adjusts for
differences in coverage difficulty, control units are taken away from some
tentative territories and added to others. The final territorial arrangement is
one in which different territories contain different sales potentials.

Differences in coverage difficulty represent differences in workloads. The

planner ascertains how large the maximum workload the largest work load
for any salesperson should be. All workloads need not be the same size, since
sales personnel vary in ability as well as in drive, and some can safely be
assigned larger workloads. However, since there is an upper limit to the
desirable workload, and this also limits a territory’s maximum geographical
extent. When final adjustments for coverage difficulty are mad : sales territories
have varying amounts of sales potential and different-sized work loads, but
none exceeds the maximum desirable work load. The work load method is
one of the approaches to determine the sales force size. Here, the same
concept, with minor modifications is used for redistricting.

Redistricting to adjust for coverage difficulty (that is, differences in work

loads) is a seven-step procedure :

1. Determination of number, location and size of customers and

prospects in each tentative territory. Customers are identified and

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 located through sales records; prospects through trade directories,
subscription lists to trade publications, classified directories, and
credit reporting agencies. Size is measured in terms of sales potential.

2. Estimation of the average time required for each sales call. This
varies from account to account and from prospect to prospect, so
customers and prospects are classified into groups, estimating an
average time per call for each group. Time and duty analyses of sales
personnel are used to check these estimates.

3. Determination of the time required for traveling from one customer

to the next. This varies among regions, depending on the density of
customers and prospects and the condition of roads and transportation
facilities. Particular attention is paid to physical characteristics. Large
rivers, lakes, mountains, and other barriers to travel make natural and
necessary territorial boundaries. The number of places where a large
mountain range can be crossed by automobile are limited and often
considerable time is consumed in the crossing. The same is true of
large rivers, lakes, bays, and so forth. Transportation facilities are as
important as physical characteristics. If public transportation facilities
such as commercial airlines are used, territories are planned with an
eye on locations of air terminals. The planner interrelates and balances
differences in sales potential, physical geographical characteristics,
and transportation facilities and routes. After sketching in on a map
the tentative territorial division according to roughly equal sales

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 potentials, the planner makes adjustments after superimposing maps
showing topographic and transportation features.

4. Deciding call frequencies. Within certain control units, some or all

customer and prospect classes require call frequencies that differ
from those in other control units. Differences in the strength of
competition require variations in call frequency rates. Similarly, call
frequency rates are influenced by the market acceptance of the product
line within control units. Cost studies on minimum profitable order
sizes also provide input to the decision on call frequencies.

5. Calculating the number of calls possible within a given time period.

To determine the number of calls per day in a certain control unit,
the average amount of time required for each call is added to the
average time between- calls and divided into the number of working
hours in the day. Adjustments are made when call lengths vary for
different classes of customers and prospects.

6. Adjusting the number of calls possible during a given period by

the desired call frequencies for the different classes of customers
and prospects. Such an exercise results in estimation for the total
workload represented by the control units in each tentative territory.
Further adjustments are made to assure that the workload in any
territory is not larger than the allowable maximum and that selling
expenses are within budget limits. The planner shifts control units
among different tentative territories, adding units to some by taking
them away from adjacent territories. Each’ shift brings the territorial

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 arrangement closer to the optimum-that is, closer to one in which
incremental sales per dollar of selling expenditures are equated among
all territories.

7. Checking out the adjusted territories with sales personnel who work
or who have worked in each are, and make further adjustments as
required. Personnel familiar with customer service requirements,
competitive conditions, and topography, roads and travel conditions
may point out weaknesses not obvious to the planner. These cause
further shifting of control units from one territory to another, each
shift bringing the final territorial arrangement a little closer to the
optimum.

Assigning sales persons to the territories

Upon obtaining the best possible arrangement of the territories, the sales
persons are assigned to the territories. The above planning had assumed that
all the sales persons are similar in their performance, however the actual
allocation of persons poses lots of problems. People vary in ability, initiative,
effectiveness and physical condition. Moreover, sales persons performance
can vary in the territory. E.g. a South Indian is likely to be less effective in
Himachal Pradesh and vice versa. So, management has to consider lots of
factors while assigning the persons to the territories. Some companies find
that assigning hometown to the people to work gives better results while
some. companies think otherwise. There can be no prescriptive basis to serve
as a basis for assigning persons to the territories. The task of assigning

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persons must fit into individual’s ability and should result into highest
contribution of the individual towards corporate profit. It might be noted that
even the periodic transfer of persons of one territory to another might be
done where it is felt that such an exercise will increase the effectiveness
of the person.

Routing and scheduling persons

The routing and scheduling plans aim to maintain the lines of communication
so as to optimise sales coverage and minimise wastage of time. The only
productive time that the sales persons spend is when they are in contact with
the customers. The time spent in travelling and reporting activities yields
less returns to the company. 5d, the routes and schedules of the sales persons
should be so designed that the non-productive time is maximised and the
productive time is maximised. The management can consider the options of
modes of transport in case this results in increasing the productive time. E.g.
the sales person may be provided with a car which will result in increase in
the productive time and an increase in the sales expenses also. Depending
the financial viability, such a decision should be taken. Similarly, companies
might allow sales persons to travel by air so as to reduce the travelling time.

The planned selection of routes will also result in reduction of non-productive

time. The schedules must be according to the convenience of the customer,
but care must be taken that the cost involved does not increase unnecessarily.
The practical problems must be accommodated while designing tour plans
and schedules and adequate flexibility must be allowed in the plans to allow
the uncontrollable situations.
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Review questions

Q.1. Explain the concept of sales territory. Why is it necessary to divide

the market into sales territories?

Q.2. What is geographical control unit. Explain the various bases for designing
geographical control units.

Q.3. What is the importance of territory shapes. What are various types
of territory shapes.

Q.4. How do companies adjust the territories in order to accommodate the

practical coverage difficulties?

Q.5. Visit the market and try to study the territory design of a pharmaceutical
company, an FMCG company and companies making consumer durable
products such as television, refrigerator, car etc.

References :

1. Sales Management decisions, strategies and cases by Coundiff, Still’

& Govani

2. Marketing Management analysis, planning implementation and control

by Philip Kotler

3. Salesmanship and publicity by Rustom Davar & Nusli Davar

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 LESSON : 5

THE SALES ORGANISATION

Organisational structures are receiving increasing attention in the companies

now-adays, as companies have started recognising that yesterday’s structures
may hinder operations in today’s dynamic environment. Companies are
streamlining their organisations by reducing the number of executive levels
between the workers and the CEO. To stimulate innovation, to reduce office
bureaucracy, and to generate faster responses to market changes, firms are
granting more authority to middle level executives in decentralized locations.
These changes show that firms today demand on organisational flexibility
to respond quickly in a dynamic, information-driven sales environment
characterized by diversity and turbulence. Undoubtedly, new organisation
structures will continue to emerge in response to changing environments.

Sales organisation is a group of individuals striving jointly to reach

both qualitative and quantitative personal selling objectives, and bearing
informal and formal relations to one another. The sales organisation is not
an end in itself but rather the vehicle by which individuals achieve given ends.

This lesson is all about the sales organisation. It focuses on the types
of organisation structures, their respective strengths and weaknesses, and
their application areas.

PURPOSE OF SALES ORGANISATION

In an ideally organised sales department, waste movements and

duplication of efforts are eliminated, friction is minmised, and co-operation

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maximised. The major purposes of sales organisation, therefore, are :

– Elimination of waste movements and duplication of effort;

– Minimisation of friction between individuals;

– Maximisation of co-operation;

– Assignment of responsibility , and delegation of authority;

– Development of specialists like product and brand managers;

– Facilitation of communication and smooth flow of information;

– To assure that all necessary activities are performed; and

– Economisation of executive time.

SETTING UP A SALES ORGANISATION

It is easy to set up a sales organisation in a smaller and new company

where one cam start from scratch but in large companies, sales organisation
is not built entirely. from scratch, as some structure already exists. Therefore,
bigger organisations face problem of reorganisation rather than setting up
of a sales organisation.

There are five major steps in setting up a sales organisation :

(i) Defining the objectives – Every organisation set the short, medium,
and long term corporate objectives and sales objectives may be derived
from them. These objectives may be based on the survival, growth and
leadership orientation of the top management.

Sales objectives are both qualitative as well as quantitative in

nature. They are usually set in terms of sales volume, profits and
growth to be achieved in some future time period. Some companies

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 also fix qualitative objectives like number of sales calls per day, new
customers created, new dealers made, and displays and demonstrations
to be done by the sales force.

(ii) Delineating the necessary activities – The top management conducts

the job analysis to find out the necessary activities to be performed
by the sales persons. These activities are usually needed to achieve
the sales objectives already defined.

(iii) Grouping activities to create positions – Activities are grouped and

closely related tasks are linked to create proper positions in the
organisation. Each position should contain not only a sufficient number
of tasks but sufficient variation also to provide for job challenge,
interest, and involvement. Important activities are assigned to higher
posts like sales manager and sales executives while less important
activities are assigned to lower level posts like sales co-ordinator or
sales clerk. When large number of positions are set up, groups of
related jobs are brought together to form departmental subdivisions.

(iv) Assigning Personnel to positions – Here the controversial questions

is whether to recruit special individuals to fin the positions or to
modify the positions to fit the capabilities of available personnel.
Generally the former is preferred.

(v) Provision for co-ordination and control – While organising, a firm

takes into account the principle of ‘span of control’, i.e. number of
persons reporting to the manager or executive. Organisational chart
is one instrument which takes care. of this principle as it depicts the
formal relationships among different positions. Written job description
also help in the control process.
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 The sales organisation does not only required defining the relationship
between sales and the other functional divisions of the firm but also within
the sales department to implement the plans. Actually a sales organisation
is both an orienting point for cooperative endeavor and a structure of human
relationships.

COMPANY WIDE ORGANISATION

Main aim of organisational structure is to establish effective working

relationships between sales and each one of the other major functional areas.
Sales can help production by providing accurate sales forecasts. Production
can return the favour with desired quality products at right time. Similarly,
Sales and finance people can work together to establish pricing and credit
policies. The organisation structure for the company is given below :

President

Vice President Vice President Vice President Vice President

Production Marketing Finance Personnel

Advertising Sales Marketing Research Export

Manager Manager Manager Manager

Sales
Officers

Sales Executives

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ORGANISATION WITHIN SALES DEPARTMENT

Most sales departments have a hybrid structure that evolves over the years
from the needs of the company. Hence, it is not necessary that two companies in
the same industry have the same structure. However, within the sales department,
the sales force is organised usually on line, line and staff, functional, and committee
bases. Out of these four first two are more frequently used.

(i) Line sales organisation – It is the oldest and the simplest structure. It is
widely used in smaller firms with narrow geographical spread and product
lines. In this structure, the chain of command, runs from top to bottom and
each subordinate is responsible towards only one person on higher level.
The main advantage of this type of structure is that responsibility can be
fixed with lase and authority can be delegated. The major weakness of the
structure is that much depend on the superior than subordinate.

General Manager

Sales Manager

Assistant Assistant Assistant

Sales Manager Sales Manager Sales Manager
Division 1 Division 2 Division 3

Salesman Salesman Salesman

(ii) Line and staff sales organisation – This type of structure is often used in
the large or medium sized organisations having diversified products that are
sold over a wide geographical area. It not only provides the sales executive
his or her subordinates but also a group of specialists like experts in dealer
and distribution relations, sales training etc. In this structure as is clear from
the name, some sales personnel have line relationship and some have staff
relationship with their superiors. Staff sales personnel do not have the
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 authority to issue orders but their recommendations are submitted to top
sales managers. If these recommendations are approved, these are
communicated to the line people in terms of instructions.

The major advantage of this type of structure is that the organisation

creates a pool of experts which helps in the imprinting the quality, of
decisions. This structure also helps in reduction of added burden on the
executive time. The major weakness of the structure is that it is expensive
and co-ordination and control over staff is difficult. As you need specialists,
you tend to recruit many experts which increase the costs for the company.
Many persons having both line and staff relationship are sometimes difficult
to co-ordinate and control. Time between problem-recognition and corrective
action, also widens. This results from giving staff personnel time to study
problems before making recommendations to the decision maker.

President

Vice President Vice President Vice President Vice President

Production Marketing Finance Personnel

Advertising Sales Marketing Research Export

Manager Manager Manager Manager

Manager Regional Manager Manager

Sales training Sales Manager Sales promotion Sales analysis

Area Sales Manager

Salesman

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(iii) Functional sales organisation – A few companies use this type of basic
structure. This type of structure, actually, has been derived from ‘scientific
management theory’ given by F. W. Taylor. It is based on the premise that
each individual in the organisation, executive and/or employee, should have
as few distinct duties as possible. Here, the principle of specialisation is
utilised to the fullest possible extent.

General Sales Manager

Manager Regional Manager Manager

Sales training Sales Manager Sales promotion Sales analysis

Salesman

(iv) Committee structure - It is never used in isolation as sole basis for

organisation. It is used for planning and execution of policy matters.
In this type of structure a team of senior managers, executives, and
salesmen is created. This team handles the sales of major customers
or sales that are achieved through bids and tenders.

VARIATIONSIN ORGANISATIONAL STRUCTURES

With the sales department, specially in medium-sized or large firms

where the line, and/or line and staff structures are used, the sales force
frequently is organised in one of these three forms of specialisation variations :
geographic territory, product line, or customer type.

(a) Geographic specialisation – Probably the most widely used method

of organising sales activities is on the basis of geographic specialisation.
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In this type of arrangement, each sales person is assigned a specific geographic
area, called territory, in which to sell. Several salespeople representing
contiguous territories are placed under a territorial sales executive, who
reports directly to the general sales manager. These territorial executives
usually are called district or regional sales managers.

The major advantage of this method is that more customers can be

added and wider area may be tapped. A geographical organisation usually
ensures better implementation of sales strategies in each local market and
better control over the sales force. Local problems of dealers, retailers, and
customers may be handled speedily. Customer service is also improved by

President

Vice President Vice President Vice President Vice President

Production Marketing Finance Personnel

Advertising Sales Marketing Research Export

Manager Manager Manager Manager

Regional Sales Regional Sales Regional Sales Regional Sales

Manager Manager Manager Manager
North South East West

Sales Executive Sales Executive Sales Executive

Haryana Punjab J&K

Sales Representative Sales Representative Sales Representative

Ambala Hisar Gurgaon

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using this structure variation. Local sales representatives can respond better
to competitors’ actions in a given territory. More and specific market information
can be gathered by using this structure. As each salesman is assigned separate
territory, sales supervision and control becomes easy.

The major weakness of this structure, however, is that size of sales

personnel increase enormously which adds to the costs and co-ordination
problems. Other drawback is that a geographic organisation does not provide
the product expertise or other specialised knowledge that some customers
may want.

(b) Product specialisation – Another basis for organising a sales force

is product specialisation. In this kind of structure company may divide its
products into separate sales manager and his sales force. This type of organisation
is best suited for the companies that are selling :

– Complex technical products

– Unrelated or dissimilar products

– Thousands of items

The main advantage of product-specialised sales organisation is the

attention that each product line can get from the sales force A drawback is
that more than one sales representative from the same company may call on
the same customer.

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 President

Vice President Vice President Vice President Vice President

Production Marketing Finance Personnel

Advertising Sales Marketing Research Export

Manager Manager Manager Manager

Sales Manager Sales Manager Sales Manager

Product Line A Product Line B Product Line C

Sales Force Sales Force Sales Force

Product Line A Product Line B Product Line C

(iii) Customer specialisation – Many companies divide their sales depart-

ments on the basis of customer specialisation. Customers may be grouped
by type of industry or channel of distribution.

President

Vice President Vice President Vice President Vice President

Production Marketing Finance Personnel

Advertising General Sales Marketing Research Export

Manager Manager Manager Manager

Sales Manager Sales Manager Sales Manager

Industry A Industry B Industry C

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 A company that specialises its sales operations by channel of distribution
may have one sales force selling to wholesalers and dealing directly with
large retailers. As more companies fully implement the marketing concept,
the customer specialisation type of organisation is likely to increase. Certainly
the basis of customer specialisation is commensurate with the customer
oriented philosophy that underlines the marketing concept. Here the
organisational emphasis is on customers and markets rather than on products.

A variation of customer specialisation is the major accounts organisation.

Many companies are adopting this structure as a better way to deal with large,
important customers. For major accounts, organisations usually involve team
selling. In this kind of arrangement, a selling team consisting usually of a
sales representative, a sales engineer, a financial executive, and a manufacturing
person will negotiate with a buying team from the customers’ organisation.

Selected questions –

(i) Discuss various types of organisational structures. What are their

advantages and disadvantages?

(ii) As a manager of a firm selling toilet soaps, how will you organise
your sales department? What options are available to you? Which
option will you select and why?

(iii) Write short notes on the following?

(a) Geographical structure

(b) Product based structure

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iv) What are, different type of organisation structures? What purpose
they serve for the organisation?

SUGGESTED READINGS

(i) “Sales Management – Tex & cases” by Cundiff, Still, and Govoni
(Prentice Hall of India Pvt. Ltd., New Delhi)

(ii) “Sales management” by Stanton. and Buskirk (Richard D. Irwin,

Homewood, Illinois, USA)

(iii) “Management of Sales Force” by Ford, Churchill, and Walker (McGraw

Hill International Publication)

(iv) “Sales Management” by Douglus Dalrymple (Dryden Press, London)

(v) “Selling and Sales Management” by Geoffrey Lancater & David Jobber
(Macmillan India Limited, New Delhi)

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 LESSON : 6

RECRUITMENT AND SELECTION

OF SALES-FORCE

Staffing is the most important management activity in an organisation.

If your planning is to work, you have got to select the right people to
implement it. A football term’s success depends greatly on the type of
players recruited. A political party’s success depends on its ability to
select the candidate who will attract the most voters. Simiarly, a sales
manger’s success depends in great measure on the sales people whom the
manger selects.

In attempting to recruit and select a new sales representative, the sales

manager finds himself in an unaccustomed role. Instead of being a seller he
or she, for once, takes on the role of buyer. It is crucial that this transition
is carried out effectively because the future success of sales force depends
upon the infusion of high – caliber personnel. There are a number of facts
which emphasise the importance of effective sales-force selection.

• There is wide variability in the sales effectiveness of sales people.

Many managers agree that top sales people earn mush more than
average sales person for the company.

• Sales people are very costly. If the company decides to employ extra
sale personnel, the cost will be very high.

• Other important determinants of success, like training and motivation,

are heavily dependent on the intrinsic qualities of the recruit. Although

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 sales effectiveness can be improved by training, it is limited by innate
ability.

This lesson is all about the recruitment and selection of sales personnel.
It discuses the-concept of recruitment and selection, describes the sources
of recruitment, and then discusses the process of selection.

Major tasks in recruitment and selection

Sales force selection includes three major tasks :

• Determining the type of people wanted, by preparing a written job

description.

• Recruitment of an adequate number of applicants.

• Selection of the most suitable persons from among the applicants.

The first step of a stiffing process is to establish the proper hiring

specifications. To establish these specifications, management must first
mow what the particular sales job entails. This calls for a detailed job
analysis and a written description. This written description will later be
invaluable in training, compensation, and supervision.

Determining the qualities and qualifications needed to fill the job is the most
difficult part of the staffing process. We still really don’t know all the
characteristics that make a good sales person. We can’t measure as to what
degree each quality should be present. Nor do we know as to what extent
abundance of one quality can offset lack of another. The search for the
qualities that make a good sales person continues. Most companies want
salesman to be enthusiastic, having good communication skills and strong

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desire to win, pleasing personality, and he must be an extrovert and self-
confident person. Most customers say they want the sales representative to
be honest, reliable, knowledgeable, and helpful. So the companies should
look for these traits while selecting the sales people. Another approach is
to look for traits common to the most successful salespeople in the company.
According to research studies, star performers exhibit the following traits :
risk taking, powerful sense of mission, problem solving care for the customer,
careful call planners, habitual wooer, energetic, self-confident; and a chronic
hunger for money.

A planned system for recruiting a sufficient number of applicants is

the next step in selection. A good recruiting system :

– Operates continuously, not only when sales force vacancies occur.

– Is systematic in reaching all appropriate sources of applicants.

– Provides a flow of more qualified applicants than is needed.

To identify recruits, large organisations often use placement services

on college campuses or professional employment agencies. Smaller firms
that need fewer new sales people may place classified advertisements in
trade publications and, daily newspapers. Many firms solicit recommendations
from company employees, customers, or suppliers.

Sales managers use a variety of techniques to determine which applicants

possess the desired qualifications, including application forms, interviews,
references, psychological tests, aptitude tests, and physical examinations.
No sales person should be hired without at least one personal interview. It
is usually desirable to have several interviews conducted by different people

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in different physical settings. Pooling the opinions of a number of people
increases the likelihood of discovering any undersirable characteristics and
reduces the effects of one interviewer’s possible bias.

ORGANISATION FOR RECRUITMENT AND SELECTION

The organisation for recruitment and selection of sales personnel

varies from company to c9mpany. Company size, executives.’ personalities,
and departmental structure all influence the organisation used. Where the
sales manager has a personnel staff assistant, recruitment and selection
usually is handled entirely within the sales department. Companies with
small sales force sometimes assign the responsibility for recruitment and
selection of sales personnel to the company personnel manager, but this is
unusual.It is more common for the personnel department to handle certain,
but not all, aspects of recruiting and preliminary screening and for the sales
department to handle other aspects of recruiting and screening and to make
the hiring decisions.

Placement of responsibility for recruitment and selection of sales personnel

in companies with regional or district sales offices also varies. These functions
tend to be centralised at the home office when the firm requires high caliber
sales personnel, such as those needed to do technical selling. However,
decentralised recruitment and selection results in reduced interviewing costs
and time, and facilitate the hiring of local applicants for sales work.

RECRUITMENT AND SELECTION - CONCEPTUAL FRAMEWORK

Recruitment is the process of encouraging people to apply for jobs

in the organisation and selection is choosing the best possible for the

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organisation. Recruitment creates a pool of potential incumbents and selection
picks the best and rejects the rest. Here are a few definitions of recruitment
and selection.

According to Edwin B. Flippo, “Recruitment is the process of searching

for prospective employees and stimulating and encouraging them to apply
for jobs in an organisation.”

In the words of Dale S. Beach, “Recruitment is the development and

maintenance of adequate manpower resources. It involves the creation of
available manpower upon whom the organisation can draw when it needs
additional employees.”

According to Dale Yoder, “Selection is the process in which candidates

for employment are divided into two classes – those who are to be offered
employement and those who are not.”

In the words of Koontz and O’ Donnell, “Managerial selection is

logically, choosing from among the candidate, the one, that best meets the
position requirement.”

According to Dale S. Beach, “Selection refers to the negative practice

of eliminating from all the candidates considered for possible employment,
those who appear unpromising. It involves making a decision as to which of
a number of candidates are to be given the opportunity to work.”

The above mentioned statements of experts clarifies that the recruitment

is a process of searching for the prospective candidates and encouraging
them to apply for jobs in the organisation while selection is choosing the
best candidates from the recruitment list.

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SOURCES FOR RECRUITMENT

The sources for recruitment and selection may be divided into two categories :
(i) Sources within the company or internal sources.
(ii) Sources outside the company or external sources.

(a) Internal Sources – The existing employees working in the same or

other departments of the company form the internal source of recruitment.
Some of the employees may be upgraded, transferred, and/or promoted to
take up sales jobs. There are some advantages and disadvantages of using this
source which are as under :

ADVANTAGES

(i) This technique improves the morale of employees because the fear
that an outsider may be given the chance to join the organisation
vanishes.

(ii) Less risk is involved in using this method as the employer already
knows the candidate.

(iii) Job security and loyalty employees also increases by using this method.

(iv) Less training effort is required as the employee doesn’t require

information about the company and its policies.

DISADVANTAGES

(i) It discourages new blood and fresh ideas.

(ii) Likes and dislikes of management may generate frustrations among

those employees who are not given a fair chance.

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(b) External sources – This category calls for hiring the candidates
from outside the company. The following sources comprise of external
sources :

(i) Campus placements - Various organisations visit professional colleges,

institutions, and universities for the recruitment of suitable candidates.
Engineering colleges and Management departments are most suitable
for technical and managerial staff.

(ii) Employment agencies - Private agencies and placement consultants

are sometime given contract to recruit sales staff for the organisation.
These agencies maintain the database of prospective candidates and
supply the list of suitable candidates to the organisation from these
databases.

(iii) Advertisements in Media - Companies may place advertisements in

newspapers, television, magazines, and trade journals for sales jobs.
Newspapers are mostly used for walk-in interviews for sales jobs.

(iv) Computerised data base - Many young persons regularly send their
resume’ to good organisations. Companies may create a database of
these aspiring candidates that may be utilised at the time of vacancies.
Some sales managers favour immediate hiring of applicants who take
the initiative in seeking sales jobs, the reasoning being that this
indicates selling aggressiveness. Some companies reject all such
direct applications because they believe the proportion of qualified
applicants from this source is low. The most logical policy is to treat
volunteer applications the same as the solicited applications. Applicants
not meeting minimum requirements as set forth in job specifications
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 should be eliminated and those meeting the requirements should be
processed together with other applicants. The aim should be to recruit
the better qualified applicants regardless of source from which they
come. The main problem with direct unsolicited applications is that
they do not provide a steady flow of applicants and their volume
fluctuates with changing business conditions.

(v) Employees’ recommendations - The employees of the organisation

may also recommend the names of friends and relatives as suitable
candidates. Retired employees often suggest names of prospective
candidates based on their experiences. Salespersons of the company
may also recommend the names of their friends, salesperson working
for retailers, dealers, and/or competitors. All these recommended
names might be used to fill the vacancies of the organisation.

(vi) Salespeople calling on the company - Company managers, specially

purchase managers, are directly in touch with sales personnel of other
companies. These managers are in a position to evaluate their on-the-
job performances. The managers may thus pass on the names of those
high caliber sales persons of other company who are willing to switch
over.

(vii) Executive club - Many senior managers are members of various types
of formal and community clubs. They meet young people in these
clubs in parties and on other occasions. If a manager comes across
good candidates, he may encourage them to apply for sales positions
in his company.
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(viii) Placement brochures - Many educational institutions send placement
brochures to different organisations. These brochures contain
information about the students who would like to take up suitable jobs
in the organisations. These brochures thus serve as a source of
recruitment.

(ix) Trade unions - Trade unions may also recommend the names of its
members of their relatives and friends.

(x) Dot coms - In this era of information technology, various dot com
companies have websites that display information about prospective
candidates. These portals may also be used as a recruitment source.

(xi) Trade associations/Alumni associations - Many trade associations

and alumni association also recommend the names of suitable persons
for sales jobs in various organisations.

The major advantage of recruitment through external sources is that

the organisation can get a person with required skills and experience. The
major disadvantge is that sister concerns may demand the appropriate person
from the parent organisation.

PRE-REQUISITE OF A SUCCESSFUL RECRUITMENT EFFORT

The following are the pre-requisites of a successful recruitment effort :

(i) It should be in conformity with the general personnel policies.

(ii) It should be flexible.

(iii) It should match the qualities of employees Gob specification) with

the requirements of work (job description) for which they are being
employed.
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PRE-REQUISITE OF A SUCCESSFUL SELECTION EFFORT

The following are the pre-requisites of a successful selection effort :

(i) There should be sufficient number (quantitatively as well as qualitatively)

of applicants from which the selection can be made.

(ii) Organisation must have some standards against which the candidates
may be compared.

(iii) Job description and job specification must be known in advance.

(iv) One should have authority to hire.

THE SELECTION PROCESS

The objective of selection is to secure an appropriate candidate for

vacant position. The procedure adopted forgetting such candidate is termed
as selection process. It involves a number of steps which act as filter screen
that helps in getting rid off undersirable candidates. The steps of selection
process are as follows :

(i) Job analysis

(ii) Recruitment sources
(iii) Application blank
(iv) Preliminary screening
(v) Written test
(vi) Interview and/or group discussion
(vii) Reference checking
(viii) Medical examination
(ix) Selection and placement
(x) Induction
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(a) Job Analysis - The job must be studied and analysed with a view to
ascertain the knowledge, experience, skills and attitudes required to perform
it effectively. Unless a proper study is made in detail of the job to be done,
the manager concerned will not be in a position to select an appropriate
person to fill that job. Selection process actually, calls for measuring the
individual’s capabilities against the job requirements.

A proper job analysis helps in the understanding of most significant

aspects of the job. It describes the authority and responsibilities attached
to a job. It also helps one understand the skills and capabilities needed to
discharge the job effectively. The resultants of job analysis are actually the
job descriptions and specifications. The following specifications, however,
may be used while selecting candidates for sales job :

(i) Physical make-up : It includes details like height, health, age Weight,
speech, appearance etc.

(ii) Education and experience : It involves the type of education and work
experience required which would be useful in performing the job.

(iii) General intelligence : Level of general intelligence must also be

specified which is different from the knowledge and skills the candidate
posses by virtue of his education.

(iv) Special aptitude : Special aptitudes like mathematical proficiency, use

of words and vocabulary, mental alertness etc. that are required to
perform a job must also be listed.

(v) The disposition required : This includes the degree of acceptability

of the candidates to the others, his extent of dependability, self-
reliance, other qualities such as d0minance, relaxed, suspicious etc.
which may be desired.
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(vi) Other relevant specifications : This list answers a variety of questions
including whether a bachelor or married person required? Whether
willingness to travel is necessary? The list also includes the level of
motivation, security, prestige, belongingness etc. which the job will
satisfy.

(b) Recruitment sources - The next step in the selection process is

tapping various recruitment sources to create a pool of potential
employees. The recruitment sources include both internal and external
sources. An organisation tries to use as many recruitment sources as
possible but within the monetary constraints.

Recommendation of employees, advertisements in newspapers

and magazines, and databases of the organisation and other private
companies and consultants are mostly used for sales jobs. The main
purpose here is to attract as many candidates as possible.

(c) Application blank - The organisation either invites the application

and resume’ from the desiring candidate or may send its own application
blank/form to be filled by the candidates who approach it. This form
contains personal information like name, address, age, marital status
etc as well as information on the education, experience, and hobbies
of the candidates.

(d) Preliminary screening - Preliminary screening serves the job of

eliminating the totally unsuitable candidates. It’s main purpose is to
save the time of both the interviewer and applicant by eliminating the
unqualified candidates.

Applicants are notified about the qualification, experience and

other important requirements in advertisement itself Candidates who
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 don’t fulfill these requirements are not called to appear in the selection
process.

(e) Written test - The use of written tests, as part of selection process,
is gaining popularity specially when hundreds of candidates are applying
for sales jobs. Many companies conduct written tests to check the
knowledge, analytical abilities, aptitude, language usage, mathematical
and reasoning abilities, psychology, and personality etc. of the candidates.
Written tests may also be designed to test the knowledge about selling
techniques, customer relationship building, and negotiating abilities
etc.

(f) Group Discussion - This technique is used to test the communication

skills and ability to influence others. Here, the candidates are given
a topic or case to discuss among themselves. Experts observe and hear
the discussion carefully and short list the suitable candidates.

(g) Interview - The interview is the most widely used selection tool.
Companies usually form a panel of experts that includes the sales
manager, personnel manager, psychologist, academicians, and senior
administrators etc. This panel interviews all the short-listed candidates
and make the final choice. Experts can judge the communication
skills, personality, confidence, leadership abilities, intelligence,
keenness, initiative, appearance, and attitude of the, candidates with
the help of interview. Experts may also clarify the doubts or insufficient
information given in the resume of the candidates.

(h) References and credit checks - This process has become very important
now-a- days. Companies write to the persons who know the candidate
and ask for their opinions regarding the conduct, general behaviour,
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 and the character of the candidates. Some companies write to the
Principal/Head of the Department last attended by the candidate. In
the case of experienced candidates, the company may write to the
previous employer for his comments about the candidates. Companies
have also started the credit checks to know the financial history of
the candidate. Credit reports give important signals to the managers
about’ the financial soundness or weakness of the candidate. If the
candidate has a history of payment defaults, and large debts he may
not be considered for the job.

(i) Medical examination - Many companies send the selected candidates

for a medical examination to check whether the candidate has any
chronic disease and/or disability which may hamper his performance
on the job.

Every candidate should be physically fit enough to discharge

his or her duties. Companies either conduct the medical examination
at their own hospitals or may hire the services of private doctors.

(j) Selection and placement - After a candidate passes the medical

examination, he is offered the appointment in the organisation. A
formal letter of appointment is issued to the candidate. This letter
contains information regarding joining period, pay-scale, nature of
job, and conditions of employment. If the candidate chooses to join
within the given time period he is absorbed on the offered post.

(k) Induction - At the time of joining at a particular post the new incumbent
need to be familiarised with the organisation culture and those as well
as his superiors, keeps and sub-ordinates. This gives him an understanding
of the conditions within which, and human brings with who he has to
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 work. This familiarisation is very important as it instantly prepares
the incumbent to feel himself a part of the organisation.

SELECTED QUESTIONS

(i) What do you understand by recruitment and selection ? Discuss the

sources of recruitment.

(ii) Discuss the steps involved in the selection process. Do you think the
reference checks are important even for salesman ?

(iii) Describe the procedure for selection of right type of salesman.

(iv) What qualities will you look for in the candidate who has applied for
a sales job ? Also discuss the selection process you will use.

SUGGESTED READINGS

(i) “Sales Management- Text & cases” by Cundiff, Still, and Govoni
(Prentice Hall of India Pvt. Ltd., New Delhi)

(ii) “Sales management” by Stanton and Buskirk (Richard D. Irwin,

Homewood, Illinois, USA)

(iii) “Management of Sales Force” by Ford, Churchill, and Walker (McGraw

Hill International Publication)

(iv) “Sales Management” by Douglus Dalrymple (Dryden Press, London)

(v) “Selling and Sales Management” by Geoffrey Lancaster & David

Jobber (Macmillan India Limited, New Delhi)

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 LESSON : 7

SALES TRAINING PROGRAMMES : AIM,

METHODS AND EVALUATIONS
OF SALES TRAINING PROGRAMMES

INTRODUCTION

Having selected the most suitable salespeople in the organisation, the next
important function of the sales management is to train and develop these new
people according to the needs of the organisation. Training is so important
that organisations does not have a choice whether or not to train personnel.
The only choice with the management is that of the method to be employed
for training the personnel. If no planned programme of training is established,
the employees may engage themselves in self-training by trial and error or
by observing others and thus training cost would not in any way, be lesser
but it could be rather higher.

All types of sales jobs require some type of training for their efficient
performance and therefore all sales people whether new or old require
training or retraining. Every new salesman irrespective of his past training,
education and experience needs training according to the work environment
of the firm. He must be taught how to perform specific tasks. An old
salesman also needs training when he is promoted to the new position or
transferred to the new sales job or when new skills are to be learnt. Training
is also necessary for better career advancement. Training helps both the
organisation and the employer. A trained employee becomes an asset to the

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firm. The entire production and marketing process culminates in the making
of sales, and management’s objective in training sales personnel is improved
job performance. Effective sales training also assists sales management in
discharging its social responsibility for controlling marketing costs when
sales people perform efficiently. Cost savings show up in benefits to consumers
as well as to the enterprises. A company’s position in its industry is determined
importantly by the performance of its sales personnel. Skillfully designed
and executed sales training programmes have potential for helping sales
personnel to achieve effective job performance.

MEANING AND DEFINITION OF TRAINING OF SALESMAN

Salesman selected for the job need training for effective sales performance.
Here are a few definitions on sales training :

According to Edwin B. Flippo, “Training is the art of in-creasing knowledge

and skill of an employee for doing a particular job”.

According to National Society of Sales Training Executives, USA, “Sales

training is the intentional and sound application of ordinary human sense
to the problem of helping the sales personnel to make the most of its
talents”.

In the words of George R. Collins; “Sales training is an organised activity

involving fact finding, planning, coaching, practice, criticism and
accommodation in a purposive attempt to develop selling skills and to ask
those skills to selected native ability, casually acquired knowledge and
experience”.

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According to Michael J. Jucious, “The term training is used to indicate
only process by which the attitudes, skills and abilities of employees to
perform specific jobs are increased”.

From the above definitions, we conclude that sales training is a technique

or method by which efforts are made to increase the knowledge, skills and
efficiency of a salesman so that he may be in a position to solve the problems
of sales and provide active contribution in increasing sales of the enterprise.
Training is a systematic approach of the organisation which aims at increasing
the aptitude, skill and the abilities of the workers to perform specific jobs.
By training, the employee will acquire new practical skills, technical knowledge,
problem solving ability and attitude etc. Sales training is a mean to increase
the knowledge of the salesman about the firm, product, market and customers
so that he may sell the firm’s product in an efficient manner.

OBJECTIVES OF SALES TRAINING

The main objectives of Sales training are :

(i) Acquainting the newly appointed salesmen with the principles of

salesmanship and techniques of selling.

(ii) Imparting knowledge of sales canvassing.

(iii) Making salesmen familiar with the firm’s policies and practices in the
field of selling and also to make them familiar with the products of
the company.

(iv) Giving information about the dealers, middlemen, and the end users
of company’s products.
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(v) Keeping the salesmen well informed about the laws governing sales
of firm’s products.

(vi) Salesmen should also be made aware of the position of competitors

in the market and to show and also and the ways of combating such
competition.

(vii) Weeding out inefficient and unsuitable appointees or promotees.

(viii) Reducing sales force turnover.

(ix) Keeping ready a group of trained salesmen to take place of those

salesmen who resign or retire.

(x) Increasing efficiency.

Training must not be confused with education. Training is concerned with

increasing knowledge and skills in performing a particular job whereas
education is concerned with increasing general knowledge and understanding
of the total environment. Moreover training is imparted by the employer and
education is provided by our formal school system.

THE NEED OF TRAINING

The need of training salesmen arises not only at the time of hiring salesmen
but at all stages of their career. In the beginning, it is needed because the
newly appointed salesmen does not have the required knowledge of the
product and also the selling techniques, nor does he know about the customers
and their behaviour. Experienced salesmen also need training to acquaint
them with the new products of the firm and those of the competitors. Son1e

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people believe that sales training is necessary and possible only in some big
organisations with large sales force and sales budget. But this is not true.
Training is needed in all organisations big or small. There are three basic
reasons for this.

(1) To develop the right work-habits : Training the salesmen is necessary

to develop proper work culture. By training they learn how to cover their
territories, to approach customers, in what style to live while travelling, what
sort of records to keep, and how to plan and execute their sales calls. Thus,
they learn the best way of doing the things at the lowest cost. If sales people
are trained properly, they learn the right habits and patterns, at the right time
and from the right learning source.

(2) To offset the effects of Detraining : The second important point why
salesmen need training is that they develop something wrong in their field
experience and thereby they are constantly being detrained. They adopt
undesirable shortcuts, gravitate towards ineffective ways of selling and often
become discouraged and dispirited from the constant buffeting of the
competitive market place. It, therefore, becomes necessary to train both new
and experienced salespeople to offset the negative effects of their field sales
experience.

(3) Complexity of Personal Selling : Another factor contributing to the

need for effective sales training is the increased complexity and sophistication
of personal selling. New technology is changing the way we used to sell
earlier. The sales people, therefore, should be in constant touch with such
technologies through training.
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Importance of Training to Salespeople and companies

The major benefits of training for Salesmen are as follows :

(1) Lower Turnover of the Salespeople : Proper training makes the

salesmen well prepared for the field work, resulting in the lower rate
of turnover of sales force. If they know their work and are remunerated
and motivated properly, they will not be leaving the organisation. The
lower rate of turnover results in reducing high cost of training, recruitment
and selection and also reduces a tag of never stays with one firm’
which ultimately helps the salesman in long run.

(2) Greater Sales Volume : A scientifically designed training programme

develops the right work habits & culture and offsets the negative
effects of the field sales experience. Salesmen learn much about the
product, the selling techniques and also how to behave with company’s
customers. This will naturally increase the sales volume of the company
and salesmen get rewards for selling more.

(3) Better Customer Relations : A well trained Salesman knows how

to deal with the customers in a particular market situation. Training
makes the salespeople more flexible and innovative in meeting changing
competitive market situations. Training also helps in maintaining good
relations with present and potential customers.

(4) Lower Super vision Costs : Well trained salespersons require less
supervisory attention from their managers. They know what to do and
how to do it.

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(5) Reduces Selling Cost : Training reduces the selling costs per unit
because of more territory coverage, higher sales volume, better use
of company supplied sales tools and correct application of company’s
selling policy or operating procedures, etc.

Thus, the net effect of training is development of proper work culture

and offsetting negative effects of field detraining. Sales volumes are maximised
and selling expenses are reduced to the minimum, resulting in higher profits,
by proper training..

CONTENTS OF A TRAINING PROGRAMME

The subject matter to be covered in a training programme vary from organisation

to organisation due to the nature and the size of the organisation. But, in
general, an effective training programme should cover the following aspects :

1. Basic Principles of Salesmanship : A salesman should be well

acquainted with the principles of salesmanship viz. how to approach and
motivate the customers to buy company’s products and to know how he is
to satisfy customers’ needs and solve their problems. Salesmanship is an art,
yet it is a science too. The salesmen must know the basic principles of
salesmanship.

2. Information about the Firm : The Sales representative must know

about the company’s sales policies and procedures, organisational set-up,
company’s past history, reputation and goodwill earned. It enables the salesman
to do his work well.

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3. Information about the Product : A good tinning programme should
impart knowledge to the salesman about the characteristics of the product,
its quality, usefulness and method of using it. It will enable him to persuade
the potential customers and if necessary to demonstrate its use. Thus, a
trained salesman can help in increasing the company’s sales volume.

4. Information about the Customers : The Salesman must the trained

in different types of approaches to reach the customers and must also be
told about different motives which prompt them to make purchases. There
are different types of customers viz. silent, talkative, ill-tempered, suspicious,
nervous, hesitant, argumentative etc. The Salesman must know how to deal
with each one of them and satisfy them to get the product sold. There are
different motives of different customers. They include considerations of
health, convenience, the sense of fear, pride, fashion, recreation, affection
etc. The salesmen must also know how to cash on these motives.

5. Information about market Conditions : The sales representative

should be well informed about the market conditions Le.”, policies and
procedures followed by the competing firms regarding pricing, discount and
commissions allowed to customers, premium schemes, quality of the product
etc. Such knowledge will help him in convincing the customers about the
company’s products and policies.

6. Matters pertaining to day-to-day work : Salesmen should also be

given proper training to know the following :

(i) Drafting of periodical reports.

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(ii) Receiving of and Replying to letters.

(iii) Preparation of orders, cash memo and credit bills.

(iv) Maintenance of their own Sales accounts.

(v) Arrangement of display and demonstration of company’s products.

Thus, a training programme, should cover all the above matters so that the
salesman should possess ample knowledge about the firm, customers, products,
and the market etc.

METHODS OF SALES TRAINING

A number of methods to train salesmen are in use. The choice of any of the
methods depends. upon several factors like cost of training, number of
trainees, purpose of training, depth of knowledge required, background of
the trainee and so on. The Sales Manager may adopt one or more of the
following methods according to the needs of the organisation :

1. On the Job Training : It is one of the most popular method of

training salesman. Under this method the salesman is trained on the job
itself. He is given opportunities of performing the activities of a typical
salesman. Usually such on the job training is made under the supervision
of a senior salesman. By keenly observing and actively participating in the
training, the salesman is able to rectify his mistakes and defects. The
senior salesman also points out his defects in the course of training and
explains the ways to correct it. Once the trainer thinks that the salesman
has gained enough knowledge and training to work independently, he is
allowed to do so.

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2. School and Colleges : Some concerns may have many training centers.
The salesman are given the sales training in those centers. Smaller firms may
admit their trainee salesmen into colleges and schools which provide coaching
in salesmanship. The sponsoring authority has to pay the tuition fees of the
salesman to be trained and authority also instructs them to attend such
classes or courses to gain knowledge.

3. Training through Correspondence : Where the salesmen are widely

scattered and training needed by them are not very critical in nature,
correspondence training can be provided. It is just like getting postal coaching.
The training materials are sent to the trainees by post regularly. In case of
any doubts, the trainee salesman can clarify his doubt by post. After the
completion of such correspondence training, the salesman are some times
asked to appear in a test. This is one of the cheap and easy methods. of
training salesmen. This method can be adopted only when the training required
is not of such importance.

4. Sales Meetings and Conferences : The members of the sales department

may gather at regular intervals say for example weekly, monthly or even half
yearly for a meeting or conference. These meetings or conferences of sales
personnel are meant for educating sales people about various aspects of
sales. The participants express their views and opinions about the present
strategies and various aspects of sales. To make these conferences and
meetings interesting, sales story, dramas, demonstrations are included in the
schedules.

5. Sales Manuals : A sales manual of a company is the first course for

the trainee salesman. These sales manuals contain information about the

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history of the firm, policies, particulars of products, advertising, sales promotion
activities etc. Besides, they also provide instructions to salesman from time
to time. They are rightly called ready guide or a tool of self study.

6. Visual Training : Visual training programmes are imparted with the

help of slides, strips, video recorders, etc. which tells a sales story or a part
of it. There are also other aids like black boards, charts, graphs, diagrams,
etc. with the help of which the salesmen are given training on a particular
aspect of sales. For example, approaching a salesman arid dealing with
annoyed customers can be shown. To make such programmes successful,
audio aids are also used. Audio aids include tape recorders and record
players. These are meant to improve the style of speaking.

7. Role Playing : It is a newly developed method of training. Under this

method a play, fully scripted and rehearsed, is presented on a stage so that
the trainee salesman may understand the real life situation. By witnessing
such acts, the sales man is able to know the art of dealing with various types
of customers. Some times one saleman plays the role of a customer or
prospect and another ‘salesman tries to convince him in the role of a salesman.

The main advantages of this training technique are that (i) it adds realism
and interest to the training; (ii) increases the. knowledge of the trainees in
reacting immediately to selling problems in a face to face sales situation;
and (iii) the trainee gains a better understanding of the dynamics of a sales
situation because they participate actively in the role playing. This type of
training is useful mainly for executive position. The weaknesses of the
technique are (i) trainees sometimes feel very awkward and harassed when

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they play their role in public and audiences pass comments; (ii) the role
playing skills of the trainees vary widely and, therefore, their performance
may not be upto the mark. Both these defects can detract salesman from the
effectiveness of this training device.

8. Lecture Method : This method is very commonly used in India. In

cases where depth of theoretical knowledge is required, formal lectures are
arranged by the organisation. Such lectures are delivered by a person presumed
to be a master of the subject at hand. The speaker may be an employee of
the organisation specially appointed for the purpose or an official of the
organisation such as chief sales executive or sales manager or he may be
an outsider but the master of the subject. Lectures sometimes are supplemented
by visual aids. To make lectures effective, usually group discussions, seminars,
and written tests are organised to follow such lectures. Trainee salesmen
attending these lectures should take notes and ask questions.

The method is very economical as the cost of training per trainee is very
low. It economizes trainees’ time and trainer’s time. It is very effective
method for transmitting straight factual information. The difficulty inherent
in the lecture method is that, unless the lecture is not carefully prepared,
planned and rehearsed, the trainees will not be receptive.

9. Game or Simulation Method : This method somewhat resembles

role playing. It uses highly structuied contrieved situations based on reality
in which players assume decision making roles through successive rounds
of play. A unique feature of this technique is that trainees receive informative
feedback. In one game, for example, trainees play the roles of decision
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makers in customers’ organisation, using data ordinarily available to make
decisions on various aspects of the problem say, on the timing and size of
orders, and so on. The results of these decisions then are calculated by
referees and feedback for the players to use in their next round of decisions.

The technique is mainly used to prepare trainees for management positions.

The method is not extensively used because, of the initial difficulties in
preparing games.

The simulation has a number of advantages. (i) participants take active part
in the games, hence they learn difficult tasks easily; (ii) players develop
skills in identifying key factors influencing decisions; (iii) Due to built-
in information feedback features, games are effective in emphasizing the
dynamic nature of problem situations and their inter-relationship. The
main limitations of the technique are : (i) It is a time consuming process
and a considerable time is required to play games, (ii) Since game designs
generally are based on ordinary decision making processes, their rules
often prevent payoffs on unusual or novel approaches. (iii) Players may
learn something that are not so.

10. Demonstration : Under this method, the trainer shows trainees the
working of the typical and complex products which need conveying information
to users. The method is highly appropriate when a new product or selling
technique is developed. Demonstrating how a new product works and its uses
can be extremely effective, much more so than presenting the same thing
by way of-a lecture.

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Demonstration can generally be used in conjunction with other training
methods say lectures. Showing (demonstrating) something is more effective
than telling. Efficient trainers use this method very extensively.

EVALUATION OF TRAINING PROGRAMME

Sales training programmes have become a significant part of most of the

companies. Their evaluation i.e., measuring programme effectiveness is
necessary step, because a sales training programme requires a huge amount
of investment of time, money and effort, and therefore, management must
expect results commensurate with the total investment.

In some respects, evaluation of sales training programme is not difficult. As

soon as the training programme is over, the trainees may be tested in terms
of what they feel about the training programme. Written questionnaire may
also be used for this purpose during and after the programme. They may also
be tested to find out if they know the pertinent facts about products, company
policies, and sales operations.

On the other hand, in the areas of sales skills and personal attitudes, the
evaluation of sales training programme is difficult. There are three main
reasons for this :

(i) Skills and attitudes are difficult to observe and to evaluate objectively.

(ii) One can never be sure to ascertain which changes in the skill, and
attitude are the result of training and which changes may have existed
in the trainees before they are trained.

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(iii) After training, one cannot be sure which skill, attitudes and knowledge
the trainee has learnt from sales experience and which have came
from the training programme itself.

Like other educational activities, training is also a semi-measurable activity.

Evaluating the effectiveness and efficiency of sales training can never be a

complete and accurate activity. During their sales career, the salespeople
acquire knowledge, skills and attitudes through experience or through training
– formal or informal. The process of evaluation is, therefore, an unending
process and a long term activity.

Training Evaluation Approaches

There are a number of approaches to evaluate the training programmes. Some

of them are given below :

1. Comparing Results with Objectives : Sales training programmes

are organised for some purpose. Certain needs, aims and objectives are
determined before training programmes are designed. The core of the
measurement is to compare the programme aims with the results such as
improved selling performance on the job etc. One can thus compare the
results with training aims and evaluate the training techniques used and
change or improve them to better fit market conditions.

But,. in this approach, the main difficulty is that it takes time to pick up
efficiency on the job and results may not show up until months after training
completion. In such cases, management may make some comparisons of
salesman’s performance, with the results. Such as the length of time new

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sales personnel (who have completed initial sales training) take to attain the
productivity level of the average experienced salesperson; the performance
against standards of trained and untrained sales personnel; and the respective
training histories of the best and the worst performers on the sales force.
Such companies plot each salesperson’s sales records on a before and after
training basis, generally converting these records to market-share percentages.

2. Through Customers : Some companies solicit the views of customers

on the salesperson’s performance after training. Such customers can be
contacted personally or by mail for their opinions. Customer’s reactions
may point out the strengths and weaknesses of the training programme.
Further customers have unique insights into their needs that can be included
in training programmes.

3. Observing Salespeople at Work : Some firms send skilled observers

with salespeople in the field after the training is completed. Such observers
are such persons who are closely associated with the designing of training
programmes and its objectives. They observe and report how the salespeople
are or are not applying the skills and knowledge which were provided in the
training. They can thus, evaluate the training techniques used and change or
improve them to better fit market conditions.

4. Interviews and Written Tests : Some companies measure programme

effectiveness on pre and post training interviews and written test basis to
determine how much trainees have learned in their aptitudes, skills and
knowledge. Written tests are usually arranged in lieu of or along with the
interview.
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5. Manager’s Opinion : Immediate bosses (sales managers or supervisors)
of trainees who have undergone training may be useful source of information
about the value of programme. They can report the performance of the
trainees after the programme. They can also suggest what more should be
taught to make the trainees fit for the market situations. Management should
measure the effectiveness of sales training programme during and after the
programme through any of the methods discussed above. Such measures
indicate what trainees have learnt. If evaluation shows that something is
lacking, the management must redesign the training programme. This process
begins with a re-examination of the training objectives, programme contents,
teaching methods, location of training and training personnel.

If evaluation work show that the programme is satisfactory in all respect,

in such cases also, management should not discontinue the training programme
because the market place is in a constant state of change as competitors
introduce new products and new uses for the product. New competitors also
enter the market. Changes also occur in economic, socio-cultural, demographic
and political arena. Consequently the skills, attitudes and knowledge required
for successful selling are also in a constant change and the form and content
are always subject to change. The training programme, therefore, must continue
to make them over fit into market conditions.

SELF-TEST QUESTIONS

1. What do you understand by training to salesman? What are the main

objectives of sales training?

2. Describe in brief the different methods of training salesmen.

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3. Discuss the need and importance of training the salesmen.

4. How should sales training programmes be evaluated? Discuss the

approaches that might be used to make this evaluation.

SUGGESTED READINGS

1. “Sales Management - Decisions, Strategies and Cases”

By Cundiff, Still and Govoni.

2. “Sales Management” By V.Das, Gupta

3. “Marketing Management” By Philip Kotler

4. “Skills for Sales Success” By Batchelor

5. “Selling and Sales Management” By Lancaster.

6. “Management of Sales Force” By Ford, Churchill and Walker.

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 LESSON : 8

MOTIVATING AND COMPENSATING SALES

PERSONNEL

MEANING OF MOTIVATION, MOTIVATIONAL HELP FROM

MANAGEMENT, REQUIREMENTS OF A GOOD SALES COMPEN-
SATION PLAN, DESIGNING A SALES COMPENSATION PLAN,
TYPES OF COMPENSATION PLAN

MEANING OF MOTIVATION

High productivity in sales personnel come about neither naturally nor

accidentally. Some sales personnel are self-starters, requiring little external,
incentive to perform effectively, but they are the exceptions. The majority
of sales personnel require motivational help from management in order to
reach and maintain satisfactory job performance levels.

Motivation is goal-directed behaviour, underlying which are certain needs or

desires. The term “needs” suggests ‘lack of something’ or a state of felt
deprivation of some basic satisfaction, while the term “desires” suggests
positive ardor and strength of feeling. The complex of needs and desires
stemming from within individuals leads them to act in ways that will satisfy
these needs and desires.

Specifically, as applied to sales personnel, motivation is the amount of effort

the salesperson desires to expend on each of the activities or tasks associated
with the sales job, such as calling on potential new accounts, planning sales

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presentations, and filling sales reports. Expending effort on each activity
making up the sales job leads to some level of achievement on one or more
dimensions of job performance-total sales volume, profitability of sales,
sales to new accounts, quota attainment and the like.

Motivational “Help” From Management

Most sales personnel require additional motivational “help” from management

in order to reach and maintain acceptable levels of job performance. They
require additional motivation both as individuals and as group members. As
individuals they are targets for personalized motivational efforts by their
superiors. As members of the sales, force, they are targets for sales management
efforts aimed toward welding them into an effective selling team. Four
aspects of the salesperson’s job affect the quality of its performance. The
following discussion focuses on these aspects. Each aspect is an important
reason why most sales personnel require additional motivation to perform
their jobs satisfactorily.

(a) Inherent Nature of the Sales Job : Although sales jobs vary from
company to company, sales jobs are alike in certain respects. To a
greater or lesser extent, each sales job involves a succession of ups
and downs, a series of experiences resulting in alternating feelings
of exhilaration and depression. In the course of a day’s work, salespersons
interact with many pleasant and courteous people; but they also meet
some who are unpleasant and rude, with whom it is difficult to deal.
They are frequently frustrated, particularly when aggressive competing
sales personnel are vying for the same business, and they meet numerous
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 turndowns. Furthermore, sales personnel spend not only working time
but considerable after-hours time away from home, causing them to
miss many of the most attractive parts of family life. These conditions
can cause an individual salesperson to become discouraged, to achieve
low performance levels, or even to seek a nonselling position. The
inherent nature of the sales job, then, often is the reason that additional
motivation is required to assure acceptable job performance.

(b) Salesperson’s Boundary Position and Role Conflicts : The

salesperson occupies a “boundary position” in the company and must
try to satisfy the expectations of people both within the company (in
the sales department and elsewhere) and in customer organizations.
There is linkage with four distinct groups : (1) the sales management
group, (2) the balance of the company organization who must be
depended upon for order fulfillment, (3) the customers, and (4) other
company sales personnel. Each group imposes certain behavioral
expectations on the salesperson and, in playing these different roles,
the salesperson faces role conflicts, such as :

1. Conflict of identification : This arises out of multi group membership.

As the salesperson works with the customer, it is reasonable to expect
identification with the customer rather than the company. However,
on returning to the company, the salesperson must drop identification
with the customer and identify with company.

2. Advocacy conflict : This arises when the salesperson has identified

with the customer, and seeks to aid the customer by advocating the
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 customer’s position to other groups in the company organization.
Although this may be important-and may be encouraged by the sales
n1anagement group it places the advocator in a difficult position.

(c) Tendency Toward Apathy : Many sales personnel have a natural tendency
to become apathetic, to get into a rut. Those who, year after year, cover
the same territory and virtually the same customers, tend to lose interest
and enthusiasm. Gradually their sales calls degenerate into routine
order taking. Because they feel they know the customers so well. They
come to believe that good salesmanship is not longer necessary. Many
salespeople require additional motivation to maintain continuing
enthusiasm for their work or to generate renewed interest in it.

(d) Maintaining a Feeling of Group Identity : The salesperson, working

alone for the most part, finds it difficult to develop and maintain a
feeling of group identity with other company salespeople. Team spirit,
if present at all, tends to be weak. Thus, the contagious enthusiasm
conducive to improving the entire group’s performance-does not develop.

If management, through providing added motivation, succeeds in developing

and maintaining team spirit, individual sales personnel will strive hard to
meet group performance standards : Few people who do not consider themselves
members of the sales team appear as poor performers in the eyes of their
colleagues in the sales force.

Providing the kind of working atmosphere in which all members of the sales
force feel they are participating in a cooperative endeavour is not easy-

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nevertheless, effective sales management works continuously to achieve and
maintain it.

DESIGNING A SALES-COMPENSATION PLAN

Whether contemplating major or minor changes or drafting a completely

new sales-compensation plan, the executive should approach the project
systematically. Good compensation plans are built on solid foundations. A
systematic approach assures that no essential step is overlooked.

(A) Define the Sales Job

The first step is to examine the nature of the sales job. Up-to-date written
job descriptions are the logical place to start. If job descriptions are outdated,
or if they are not accurate and incomplete, revision is in order.

Other aspects of company operations should be considered in relation to

their impact on the sales job. Sales department objectives should be analyzed
for their effect on the salesperson’s job. Sales volume objectives, for instance,
whether in rupees, units of product, or numbers of dealers and distributors,
are translated ultimately into what is expected of the sales personnel, as a
group and individually. The impact of sales-related marketing policies should
be determined. Distribution policies, credit policies, price policies, and
other policies affect the salesperson’s job. Current and proposed advertising
and sales promotional programmes should be evaluated as per their significance
for sales personnel. The review of company objectives, policies, at promotional
programmes should assist in clarifying the nature of the salesperson’s goals,
duties, and activities.

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(B) Consider the Company’s General Compensation Structure

Most large companies, and many smaller ones, use systems of job evaluation
to determine the relative value of individual jobs. Job-evaluation procedure
is not scientific; it is an orderly approach based on judgment. It focuses on
the jobs, without considering the ability or personality of individuals who
do the work. Its purpose is to arrive at fair compensation relationships among
company jobs.

(C) Consider Compensation Patterns in Community and Industry

Because compensation levels for sales personnel are closely related to

extern, supply-and-demand factors, consideration should be given to prevailing
compensation patterns in the community and industry. Management need
answers to several key questions : (1) What compensation systems are be
in, used? (2) What is the average compensation for similar positions? (3)
How are other companies doing with their plans? (4) What are the pros and
con of departing from industry or community patterns? The answers to these
and related questions and their relative significance, differ with the company
and the industry.

If there is a companywide formal job evaluation programme, it should take

into account the current rates for sales positions in the community and
industry. A programme for setting compensation of sales personnel is sound
only if it considers the relation of external compensation practices to those
of the company. Sales executives should maintain constant vigilance against
the possibility that the pay of sales personnel should not get out of line with
that paid for similar jobs in the community or industry.
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(D) Determine Compensation Level

Management must determine the amount of compensation a salesperson

should receive on the average. Although the compensation level might be set
through individual bargaining, or on an arbitrary-judgment basis, neither
expedient is recommended. Management should ascertain whether the caliber
of the, present sales force measures up to what the company would like to
have. If it is too low, or if the company should have lowergrade people than
those currently employed, management should determine the market value
of sales personnel of the desired grade. Management should also weigh the
worth of individual persons to the company through estimating the sales and
profit that would be lost if particular salesperson resigned. Still another
consideration in setting the sales compensation level is the amount the
company can afford to pay. The result of examining these and other factors,
pertinent to the situation of the individual firm, is a series of estimates for
the total cost of salespeople’s compensation.

(E) Provide For the Various Compensation Elements

A sales-compensation plan has as many as four basic elements : (1) a (fixed

element) either a salary or a drawing account, which is intended to provide
some stability of income; (2) a variable element (for example, a commission,
bonus, or profit-sharing arrangement), designed to serve as an incentive; (3)
an element providing for (reimbursement of expenses or payment of expense
allowances; and (4) an element covering the fringe or “plus factors”, such
as paid vacations, sickness and accident benefits, life insurance, pension and
the like. Not every company wants to, or should, include all four elements.
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Management should select the combination of elements that best fits the
requirements of the firm’s selling situation. The proportions that different
elements should bear to each other vary with the particular situation. However,
most companies split the fixed .and variable elements on a 60/40 to an 80/
20 basis.

(F) Special Company Needs and Problems

Although a sales compensation plan is no panacea for marketing ills, yet it

is often possible to construct a plan that increases marketing effectiveness.
If a company’s earnings are depressed because sales personnel overemphasize
low-margin items and neglect more profitable products, it may be possible,
despite the existence of other managerial alternatives, to adjust the compensation
plan to stimulate the selling of better-balanced orders.

Specifically, variable commission rates might be set on different products

with the higher rates applied to neglected products. Or, as another example,
a firm might have a “small-order” problem. It is possible to design compensation
plans that encourage sales personnel to take larger orders. Commission rates
can be graduated so that higher rates apply to larger orders. However, the
revised compensation plan probably should be supplemented by a customer
classification and call scheduling system, enabling management to vary call
frequency with account size.

As still another example, a company may want to obtain more displays or

local advertising by retailers. Often, the presence or absence of point-of
purchase displays can spell the difference between marketing success or

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failure. Under such conditions, securing retail displays of company products
is important. This is a task that sales personnel may neglect, especially if
they are paid commissions based on sales volume. To overcome this tendency,
an incentive payment for obtaining retail displays is often incorporated in
the compensation plan.

Numerous other possibilities exist for using the compensation plan to help
solve special company problems. Plans may be designed to assist in securing
new customers and new business, improving the quality of sales-people’s
reports, controlling expenses of handling complaints and adjustments, reducing
travelling and other expenses, and making collections and gathering credit
information. Management, however, should recognize that other means exist
for dealing with such problems which are generally transitory in nature.
Repeated tempering with the sales-compensation plan in an effort to solve
many and varied problems frequently results in complex and difficult-to-
administer plans.

(G) Consult the Present Sales Force

Management should consult the present sales personnel, as many grievances

have roots in the compensation plan. Sales personnel should be asked for
their likes and dislikes about the current plan and suggest changes in it. Their
criticism and suggestions should be appraised relative to the plan or plans
under consideration. But at this point, management should compare the
caliber of the present sales force with that of the people whom it would like
to have. If the present salespeople are not of the grade that the company
wishes to attract, their criticisms and suggestions may be of limited usefulness.
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Since, however, nearly every sales force has some people of the desired
caliber, more weight can be attached to their opinions than to those of others.

(H) Reduce Tentative Plan to Writing and Pretest It

For clarification, and to eliminate inconsistencies that have crept in, the
tentative plan should be put in writing. Then it should be pretested. The
amount of testing required depends upon the extent to which the new plan
differs from the one in use. The greater the differences, the more thorough
should be the testing.

The plan should be tested for the sales force as a group and for individuals)
faced with unique selling conditions. Analysis should reveal whether the plan
permits earnings in line with the desired compensation level. If deficiencies
show up, the plan may not be at fault; weaknesses may be traced to the way
territorial assignments have been made or to inaccuracies in sales forecasts,
budgets, or quotas.

To conduct a pilot test, several territory representatives of different sets of

selling conditions are selected. The proposed plan is applied in each one
sufficiently long to detect how it works under current conditions. Pilot tests
are invaluable for spotting possible sources of trouble and in uncovering
other deficiencies.

(I) Revise the Plan

After test results have been analyzed, the plan is revised to eliminate troublespots
or deficiencies. If alterations are extensive the revised plan goes through
further pretests and perhaps another pilot test. But if changes have been only
minor, further testing is not necessary.
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(J) Implement the Plan and Provide for Follow-Up

At the time the new plan is implemented, it should be thoroughly explained

to sales personnel. Management should convince them of its basic fairness
and logic. The sales personnel should understand what management hopes
to accomplish through the new- plan and how this is to be done. Details of
changes from the old plan, and their significance, require explanation. All
sales personnel should receive copies of the new plan, together with written
examples of the method used for calculating earnings. If the plan is at all
complex, special training sessions should be held and aimed at teaching sales
personnel how to compute their own earnings. When sales personnel do not
understand the plan or certain of its features, such as quotas and variable
commission bases, they are prone to think that the company is taking unfair
advantage of them. Inadequate understanding of the sales compensation plan
is common and often a cause of low morale. No effort should be spared to
make sure that everyone on the sales force fully comprehends the compensation
plan and its workings.

Provisions for follow-up should be made, in order to ascertain how the plan
is working, out in practice. From periodic check-ups, need for further
adjustments is detected. Periodic checks provide evidence of the plan’s
accomplishments, and they help uncover weaknesses needing correction.

REQUIREMENTS OF A SOUND COMPENSATION PLAN

Designing a sales compensation plan is not an easy task. There is no single

compensation plan which suits all sizes and types of firms. Devising a sound

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plan, two considerations must be there in mind- (i) such plan must motivate
the sales people to do what the sales management wants. The sales management
wants maximum sales and yet to keep sales expenses a minimum, (ii) From
the sales person’s point of view, the basic concern is to get a fair earnings
in comparison with the incomes of his or her peer group, of other company
employees, and of the relevant labor market. He also wants a balance of
security (a fixed income) and payments for extra efforts (incentive income).
An effective compensation plan must represent both points of view. A carefully
designed compensation plan must attract, motivate and retain capable
salespeople within the company’s budget.

The main characteristics of a sound compensation plan are as follows :

(i) Simplicity : An effective compensation plan should be, as simple as

possible, easily understandable, and simple to operate. The salespeople
should be able to calculate what they are to get without any difficulty.
A plan which is not easily understood loses its value as a motivator.

(ii) Fairness : The compensation plan must ensure equity. It must be fair
both to company and its sales force. Compensation to sales force is
the major item of selling costs and therefore, it should be in line with
sales volume. The plan should not have any room for discrimination
against or for any individual salesman. A plan should be to reward
ability and productivity and therefore, it needs a constant watch,
scrutiny and willingness to revise the plan, if necessary, to even out
inequities resulting from territorial differences.

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(iii) Incentive : A sound compensation plan should stimulate the salespeople
to get what the company wants from them to meet the company’s
goals. In particular, it must motivate the salespeople to achieve higher
sales profits rather than higher sales volume.

(iv) Flexibility : A sound compensation plan should be flexible enough

to cope with the changing conditions of the company, salesman and
the market. Changes in the supply of salespeople, products and customers
as well as changes in the competitive situation will require adjustments
in the company’s compensation plan.

(v) Control : The salespeople are expected to do what the sales management
pays them to do. A sound to do. A sound compensation Plan should
control and direct the salespeople’s activities. The salesman should
be penalized if he fails to achieve the sales goals.

(vi) Guaranteed Income : The plan must guarantee a minimum compensation

so as the salespeople can maintain a minimum living standard. A
person worried about money matters cannot do justice in performing
his job.

(vii) Economical to Administer : The plan should be economical to administer

otherwise it will add to the selling cost.

(viii) Help to attain objectives : A sound plan should help to attain the
objectives of the sales organization and of the firm. The main objective
of the sales organizations is to earn higher profits with lower selling
costs.

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(ix) Competitiveness : The level of compensation must be competitive
with that of other competitive firms. Attractive pay is necessary to
attract, keep and develop a good sales force but it should, not be much
lower because nothing leads to high sales turnover faster than a non-
competitive sales compensation plan.

Thus, in designing new plans or modifying old ones, the management

must consider the above points into consideration.

VARIOUS METHODS OF REMUNERATING SALESMEN

Monetary compensation is the single most important factor to affect the

efficiency of a salesman. Efficiency of salesman has direct relation with the
method of remuneration adopted by the company. There are a number of
methods of rewarding salesmen, it can, however, be brought under the following
three basic types of compensation plans :

(1) Straight Salary Method

(2) Straight Commission Method

(3) Combination of Salary and Other Variable Elements

(1) Straight Salary Method

This method is the simplest one. Under this method, salespeople get a fixed
sum of money at regular intervals (say weekly, fortnightly or monthly)
irrespective of the turnover he effected during the period. Regular increments
are given in the salary scale. The method is suitable in the following cases :

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(i) When a salesperson’s actual work function is not directly related to
sales volume or to other quantitative measures of productivity. It is
often true when a salesperson is to perform many other non-selling
functions also such as market research, customer problem analysis,
servicing and sales promotion etc.,

(ii) when the firm introduces a product or develops a new market,

(iii) when a person is under training, and when there are seasonal variations
in sales.

Advantages : Straight salary method of compensation has several advantages

over other methods as follows :

(i) It provides strong financial control over sales personnel. The management
has powers to direct the activities of the sales personnel along the
most productive lines.

(ii) There is more flexibility for management to switch customers and

territories without much resistance from the salesperson. Thus,
management can recast the field job according to the changed selling
situations.

(iii) This method is simple to understand and economical to administer.

(iv) From salespeople stand point, the straight salary plan ensures stability
of income and makes them free from uncertainties. They are not
feared of the cut in earnings even when their efficiency is temporarily
impaired by injury or sickness.

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Disadvantages : The system has several weaknesses :

(i) There is no monetary incentive to do hard work. Generally salesmen

do only an average rather than an outstanding job.

(ii) The system does not distinguish between efficient and inefficient
workers. All are paid on time basis. It, therefore, under compensates
a productive salesperson and over compensates a poor performer. It
leads to higher sales force turnover.

(iii) It requires a continuous and strict supervision so that a minimum

can be obtained.

(iv) Due to higher sales force turnover, the cost of recruiting, selecting
and training goes up.

(v) From management point of view selling cost per unit vary with the
variation in sales volume because salary paid to salespeople is a
fixed expense and has no relation to sales.

(2) Straight Commission Method

Straight commission method is based on the theory that individual Sales

personnel should be paid strictly according to productivity. Sales volume is
considered to be the best measure of productivity and therefore, salesperson
is remunerated on the basis of sales effected by him. He gets a fixed
percentage of commission on total sales volume effected by him during a
period of time. The rate of commission may vary from company to company
or product to product or according to size of orders.

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Most straight commission plans fall into one of the two broad classifications :

(i) Straight commission with sales personnel paying their own expenses.
Advances against earned commission mayor may not be made.

(ii) Straight commission with the company paying expenses. Advances

against earned commission mayor may not be made.

Suitability : The plan is suitable in the following cases :

(i) Where the work assigned is of standardized nature such as collecting

orders etc., and the non-selling duties are relatively un-important.

(ii) Where management is more concerned with the volume of sales.

Advantages : The system claims the following advantages :

(i) Direct motivation is the key advantage of straight commission method.

A strong incentive is provided to salespeople to increase sales volume.
i.e., productivity. Strong performers are attracted and encouraged
whereas marginal performers are eliminated.

(ii) Under this system, sales expenses have direct relation with sales
volume hence such expenses are variable in nature. Cost of sales,
therefore, can be budgeted in advance.

(iii) The system is flexible. The rates of commission can be revised depending
upon the market conditions and the need of earning higher profits.
Products fetching higher gross margins may bear higher rates of
commission.

(iv) The system requires no strict direct control and supervision over the
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 salesmen. In other words, it encourages voluntary efforts to increase
sales.

(v) It ensures fairness to all people with poor performance get less
whereas a rewarding performance is suitably compensated.

Disadvantages : The system records the following weaknesses :

(i) Loss of control over salespeople’s activities is the major weakness

of this system. It further compounds when they pay their own expenses.

(ii) Some undesirable selling practices develop under this system. The
strong incentive to sell more encourage over stocking, misrepresentation
of goods, considering individual accounts their private property and
other undesirable practices. Such practices lead to loss of goodwill
of the firm.

(iii) Because sales people are more concerned with the sales volume, they
prefer to sell easy-selling low margin items and neglect harder-to-
sell high margin items. It will lower down the contribution. To correct
this, management can use differential commission rate.

(iv) The earning of the salespeople, under this system is quite uncertain.
They cannot plan their activities. If salesperson’s efficiency is impaired
temporarily, they will lose their earnings for that period. Their earnings
depend on so many factors and many of which are beyond their
control. A financially strained salesman cannot work efficiently.

DETERMINING THE COMMISSION BASE

A highly important aspect in designing straight commission system is to

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determine the base on which commission is to be paid. Usually, this depends
upon the selling policies and problems of the concern. Any of the following
base can be followed but in different circumstances :

(i) If company is concerned only with obtaining orders and effecting

higher sales, total sales volume may be taken as the base for determining
commissions.

(ii) Where sales personnel are allowed to make collections, commissions

are based on amounts collected.

(iii) If a firm has excessive order cancellations, commissions can be based

on shipments, billings of payments.

(iv) Where the sales personnel are allowed to cut prices, gross margins
are taken as the base for calculating commissions, and

(v) where the sales management wants to control cutting prices, selling
expenses and net profit, net profit may be used as a base to determine
commissions.

MODIFICATIONS OF STRAIGHT COMMISSION PLAN

Several modifications of the straight commission plan have been suggested

to overcome the disadvantages. The following are the popular modified
schemes :

(A) Commissions With Drawing Account : Under this system, the firm
maintains salesperson’s individual accounts from which money is advanced
to the salesperson-against future commissions and the commissions due are
credited to this account periodically. The overdrawn amount is adjusted in
future.
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The advantages of this system are :

(i) It gives salesperson some security of a salary.

(ii) The management may have more control over the salespeople’s activities.

The main problem in this system arises only when the salesperson fails to
earn sufficient commission to payoff the overdrawn accounts. In such
circumstances, either he may quit or be fired. In such cases, the company
has to bear the loss.

(B) Sliding Commission Plan : Under this plan, the rate of commission
increases with the increases in the volume of sales. This plan may also be
known as progressive commission plan. For example, a salesperson may be
paid 50/0 commission on sales upto Rs. 50,000, 6% for sales from Rs.
50,000 to Rs. 1,00,000 and 7½% on sales above Rs. 1,00,000.

Under this plan, the earning of the safes people increases more than
proportionately. The plan provides a strong stimulus to increase sales.

(C) Regressive Commission Plan : This plan is just reverse of the

progressive plan. The rate of commission under this plan goes down with
the increase in sales and therefore earning of the salespeople decreases
more than proportionately. This plan gives strong financial incentives to
initial sales. The plan goes against common sense but it works well in
situations where the major task is to achieve the initial sales.

(D) Varied Commission Plans or Differential Commission Plans :

Under such plans, different rates of commission are fixed for different
items. Higher commissions are given for selling products with high gross

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profitability and lower commissions for products with smaller profitability.
Though, it is not as simple as the straight commission plan, it is more
flexible. It also relates selling expenses to profitability.

(3) Combination of Salary-and-Incentive Plan : Both the straight salary

and straight commission methods have their own limitations. To overcome
the weaknesses of the two systems, certain other incentive methods have
been developed. Some of these are :

(A) Salary Plus Commission : This system is developed as an attempt

to offset the disadvantages of both the straight salary and straight commission
methods and capture the advantages of both. Under straight salary system,
incentive to sell more is not there. Where the straight commission system
is adopted, the executive has less financial control over the non-selling
activities of the sales force. Blending of the two plan, will provide the
management both control and motivation. Under this method, each salesman
is guaranteed of a minimum salary each month. Over and above the fixed
salary, the salesman also gets a fixed percentage of commission on sales.
It provides a security of income and also an incentive to earn more by
increasing the sales volume.

This method may take any of the following two forms :

(a) Salary plus commission on total sales.

(b) Salary plus commission over quota sales.

(a) Salary plus Commission on Total Sales : This system is quite simple
and most widely used. The salesman is paid a fixed and predetermined
amount as salary. Commission is also paid on totals sales effected by him.
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(b) Salary Plus Commission Over Quota Sales : A fixed amount of salary
is paid in this method also but the calculation of commission is not done
on total sales effected by him. Under the method, a minimum quota of sales
is fixed for each salesman and no commission is paid until he crosses his
quota figure. In other words, he has to qualify himself for the benefit of
commission by selling over the quota fixed for him over a period of time.

(B) Bonuses : Bonus is different than commission. It is an incentive payment

made at the discretion of the management for accomplishing a specific level
of achievement. It is usually a reward for special efforts and provides direct
motivation. Unlike commission, it is not directly related to sales performance.
Bonus is an additional incentive rather than part of the basic compensation
plan. Payment of bonus is given in addition to the amount of salary or salary
and commission or commission.

Different firms use different bases for calculating the amount of bonus.
Most frequently used base is the attainment of sales quota set by negotiation
between salespeople and their supervisors. Bonus is paid for sales in excess
of quota sales. Sometimes, bonus is attached with the profitability of the
products rather than sales volume alone. Other bases may be number of new
accounts opened or performance of certain types of promotional work or
reduced selling expense, collection of amounts from customers etc.

Bonuses are generally paid as a supplement to other compensation plans. It

is an incentive to salespeople to get the things done what the company likes.
The sales manager can control and direct the selling activities towards the
organizational objectives.
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In most cases, bonuses are paid in cash, but in certain cases, they are paid
in kinds. Thus, combination compensation plan provide security of stable
income and the direct stimulus to sales people to increase sales volume and
earn more. The main weakness of the system is that more complicated
records are required.

SELF-TEST QUESTIONS

1. Outline the criteria for a sound compensation plan.

2. Discuss the various methods of remunerating salespeople pointing

out merits arid demerits of each method.

3. Why the salespeople need motivation from the management of the

company?

4. Discuss the different steps to be undertaken for designing a sales

compensation plan.

SUGGESTED READINGS

1. “Sales Management - Decisions, Strategies and Cases”

By Cundiff, Still and Govoni.

2. “Sale Management” By V.Das Gupta

3. “Marketing Management” By Philip Kotler

4. “Skills for Sales Success” By Batchelor

5. “Selling and Sales Management” By Lancaster.

6. “Management of Sales Force” By Ford, Churchill and Walker.

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 LESSON : 9

SALES BUDGETS AND QUOTAS

SALES BUDGET

A sales budget is simply a tool, a financial plan, that depict how resources
should best be allocated to achieve forecast sales. In other words, sales
budget is a blueprint for making profitable sales. It details who is going to
sell ‘how much’ of ‘what’ during the operating period, and to which customers
or class of trade and the likely selling expenses. It is a projection of what
a given sales programme means in terms of sales volume, selling expenses,
and net profits. The purpose of sales budgeting is to plan for and control
the expenditure of resources (money, material, people and facilities) necessary
to achieve the desired sales objectives.

The sales forecast is the source for the sales volume portion of the sales
budget. The sales volume objective derived from the sales forecast is broken
down into the quantities of products that are to be sold, the sales personnel
or sales districts that are to sell them, the customers or classes of trade that
are to buy them, and the quantities that are to be sold during different time
segments in the operating period. After these breakdowns are made, the
selling expenses that will be incurred in implementing the sales programme
are estimated. Sales forecast and sales budget are therefore, intimately
related as much as if the sales budget is inadequate, the sales forecast will
not be achieved, or if the sales forecast is increased the sales budget must
be increased accordingly. Sales budget by relating sales obtained and resources

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deployed also acts as a means for evaluating-sales planning and sales effort.
It aims at attaining maximum profits by directing the emphasis on most
profitable segments, customers and products.

(A) PURPOSE OF THE SALES BUDGET

A sales budget generally serves three important purposes.

(i) Instrument of Planning : The budgeting process requires complex

sequences of planning decisions. In order to achieve goals and objectives
of the sales department, the managers must outline essential tasks to
1Je performed and compute the estimated costs required for their
performance. The planners show how the targeted volume can be
reached, while keeping selling expenses at a level that permits attainment
of the targeted profit. Sales budgeting, hence, helps in profit planning
and provides a guideline for action towards achieving the organisational
objectives. The alternative sales plan are drafted so that selection of
the most appropriate may serve the company’s sales volume and net
profit objectives.

(ii) A tool of coordination : Sales department is a sub-system of marketing

division and selling is one of the most important functions of marketing.
To be effective, it needs support from other elements of the marketing
mix. The, process of developing realistic sales budget draws upon
backward and forward linkages of selling with marketing and in turn
brings about necessary integration within the various selling and
marketing functions, and coordination between sales, finance, production
and purchase function. The sales budget enables sales executives to

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 coordinate expenses with sales and with the budgets of the other
departments.

(iii) Mechanism of Control : Control is the prime orientation in sales

budgeting. The budget, which is a composite of sales, expense, and
profit goals for various sales units, serves as a yardstick against which
progress is measured. Comparison of accomplishments with relevant
breakdowns of the budget measures the quality of performance of
individual sales personnel, sales regions, products, marketing channels,
and customers. These evaluations identify specific weaknesses in
operating plans, enabling safes management to make revisions to,
improve performance. The sales budget itself, since it is a master
standard against which diverse aspects of performance are measured,
then serves as an instrument for controlling sales volume, selling
expenses, and net profits.

(B) METHODS OF SALES BUDGETING

Methods of sales budgeting differ from company to company. There are a

variety of methods ranging from the sales manager’s gut feelings to application
of computer based management science models for determining the sales
budgets. Some important methods are given below :

(i) Percentage of Sales : This method is also know as rules of thumb.

In this method manager multiplies the forecast sales by various
percentages for each category of expense. The resultant then becomes
the amount budgeted for each of the respective categories. It is
generally based on the manager’s experience or feelings about what
portion of the sales volume can be spent on each business function
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 to achieve the desired profit. But, there are no guarantees that setting
the budgets using these percentages will lead to optimal performance.
Mass selling organisations are major users of this method.

(ii) What is affordable : This method is generally used by firms dealing

in capital industrial goods. Also, companies giving low emphasis on
sales and marketing function or having small size of operation make
use of this judgemental method.

(iii) Competitive parity method : This method advocates determining

sales budget comparable to the competitors. The use of this method
presumes knowledge of the competitor’s activities and resource
allocation. Large sized companies’ whose products face tough
competition and need effective marketing to maintain profits use this
method.

(iv) Objective and task method : In this method the manager starts with
identifying the objectives of sales department followed by determination
of tasks that must be accomplished in order to achieve the set objectives.
Later, the cost of each activity or task is calculated to arrive at the
total budget. The finalisation of the budget may require adjustment
both in the objectives as well as in the way the task may be performed.

(v) Zero-base budgeting : It is relatively new approach to budgeting. It

involves a process in which the sales budget for each year is initiated
from zero base thus, justifying all expenditure and discarding continuation
of conventions and rules of thumb. This method suffers from practical
limitations which relate to a very elaborate and time consuming process
required by it.
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(C) SALES BUDGETARY PROCEDURE

Sales budgetary procedure differ from company to company with most

differences tracing to difference in basic planning styles, i.e., top-down and
bottom up. In top down planning, top management sets the objectives and
drafts the plans for all organisational units. By contrast, in bottom-up planning
different organisational units (generally departments) prepare their own
tentative objectives and plans and forward them to top management for
consideration. Preparation of sales budget is one of the most important
elements of the sales planning process. Mostly sales organisations have their
own specified procedures, formats and time tables for developing the sales
budget. However, the general steps taken in systematic preparation of sales
budget can be identified in the sequence given below :

(i) Analysis of sales volume and expenses : The preparation of the sales
budget normally starts at the lowest level in the sales organisation and
works upward. Thus, each district sales manager estimates district
sales volume and expenses for the coming period. Some of the common
items each sales budget includes are salaries, travel, lodging, food,
entertainment, commissions on sales, office expenses, promotional
material selling aids, contest awards, product sample etc.

These district budgets are submitted to the divisional or regional

office, where they are added together and are included with the divisional
budget. In turn, divisional budgets are submitted to the sales manager
for the particular product or market group. At the end this chain of
subordinate budgets, the top sales executive compiles a companywide
sales budget.

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(ii) Handing competition for available funds within the marketing
division : Sales executives at the top level must communicate their
sales goals and objectives to the marketing department and argue
effectively for an equitable share of funds. The chief sales executive of
the company should encourage participation of all supervisors and
managers in the budget process so that, as a part of its development, they
will accept responsibility for it and later enthusiastically implement it.

(iii) Selling the sales budget to the top management : The top sales and
marketing executives must visualise that every budget proposal they
are presenting to the top management must remain in competition
with proposal submitted by the heads of other divisions. Each and
every division usually demand for an increased allocation of funds.
Unless sale managers rationally justify each item in their budgets on
the basis of profit contribution, the item may not get due consideration
of the top management.

(D) BUDGET IMPLEMENTATION AND FEEDBACK

Actual budgetary control features go into operation, as soon as the approved

budgets have been distributed to all units of the company. Each item in the
budget serve as standards against which management measures performance.
In case actual performance is at a variance from budgeted performance, two
courses of actions are available to the organisation.

(i) To ascertain whether the variance is a result of poor performance by

the sales group - necessary steps should be taken to ensure that sales
persons organise their selling efforts more carefully, so that budgeted
expenses can be brought back into line.
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(ii) To revise the sales budget by incorporating the changed allocation of
the item. For example, if the travel expenses have increased because
of the necessity of calling on new customers not previously covered,
action should be taken to revise the budget to reflect the changed
conditions.

Salespersons are generally trained to be budget-conscious. It is the responsibility

of the sales manager to ensure that sales revenue and cost ratios remain
within reasonable budget limit. Experiences bring out the following main
items on which variance between budgeted and actual costs often arise, are
salaries and fringe benefits, direct selling expenses, maintenance of company
vehicles, promotional costs, discounts, rebates etc. It is wise to tighten
control over expenses especially under circumstances when sales forecasts
are not being met or sales budgets are being exceeded.

(E) FLEXIBILITY IN BUDGETING

If sales budget estimates are consistently, or even frequently, found to be

errorneous, it may be that more time should be spent in budgetary planning.

Perhaps sales forecasting methods are misapplied or are inappropriate for

the budgeting situation. Experience shows that in most fields sales can be
forecast for a sufficiently long period, and within limits of accuracy that are
sufficiently close to serve the purpose of stabilising production. If it is
possible to forecast sales within the limits needed to stabilise production,
it is possible to forecast sales within the limits of accuracy required for
purposes of budgeting selling expenses.

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Some companies, either intentionally or because of difficulties in securing
accurate sales forecasts, use budgetary procedures without definite forecasts.
One way is to prepare alternate budgets, based on different assumptions
about the level of sales volume. Thus, efficiency can be evaluated, even
though wide variations exists between expected volume and actual volume,
‘Low-volume’ and ‘High-volume’ forecasts are prepared on break-even style
charts and interpolated to adjust for the difference between the two alternative
budgeted sales figures and the actual operating level.

However, flexible budgeting is the subject of considerable criticism, because

whenever it is used, plans must be made on the basis of wide range of
probabilities. Some experts refer to flexible budgeting as a crutch for weak
executives who have not absorbed the art of forecasting. Most writers on
sales management argue that some flexibility is desirable. Companies cannot
authorise a year ahead expense appropriations so flexible that there is no
need later to review or revise them. Full advantage of new market opportunities
must be taken as they appear. If competitors initiate actions not foreseen
at budget-making time, funds must be allocated to counter-act them. A
realistic attitude toward the dynamic character of a market is part of effective
sales budgeting.

When the budget is in error because of faulty sales forecasting and badly
set sales and profit objectives, the accepted procedure is to alter estimates
by applying standard ratios of costs to the adjusted volume figure. This
system, known as variable budgeting, is used by most business.

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(F) CONCLUSION

The sales budget is a statement of projected sales revenues and selling

expenses. The projected sales revenues are, in effect, the sales volume
objectives derived from the various sales forecasts. The projected selling
expenses are determined by the different organisational units within the sales
department and are based on assigned sales and profit objectives. The sales
budget is best prepared in an atmosphere where the bottom-up planning style
predominates, with each echelon preparing a tentative budget of revenue and
expense. In reality, the sales budget is a composite of quotas-for sales,
profits, and expenses - and is a valuable tool for control.

SALES QUOTA

A sales quota is a quantitative goal assigned to a sales unit for a specific

period of time. A sales unit may be a sales person, territory, branch office,
region or distributor. Sales quotas are used to plan, control and evaluate
selling activities of a firm. As standards for appraising selling effectiveness,
quotas specify desired performance levels for sales volume, expenses, gross
margin, net profit, selling and non-selling activities, for some combination
of these items. Sales quotas provide a source of motivation, a basis for
incentive, compensation, standards for performance evaluation of sales person
and uncover the strengths and weaknesses in the selling structure of the firm.

Quotas are devices for directing and controlling sales operations. Their
effectiveness depends upon the kind, amount, and accuracy of marketing
information used in setting them, and upon management’s skills in administering
the quota system. In effective systems, management bases quota on information

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derived from sales forecasts, studies of market and sales potentials, and cost
estimates. Accurate data are important to the effectiveness of a quota system,
but, they are not sufficient; judgement and administrative skills are required
of those with quota setting responsibilities. Soundly administered quotas
based on thorough market knowledge are effective devices for directing and
controlling sales operations.

(A) PURPOSE OF THE SALES QUOTA

(i) To provide standards for evaluating performance : Quotas provide

a means for determining which sales personnel, territory, other units
of sales organisation, or distributive outlets are doing average, below
average, or above average job. They are yardsticks for measuring sales
performance. Comparisons of quotas with sales performance identify
weak and strong points, but management must dig deeper to uncover
reasons for variations.

(ii) To furnish goals and incentives for the sales force : Quotas provide
salespersons, distributive outlets and others engaged in selling activities,
goals and incentives to achieve certain performance level. Many
companies use quotas to provide their sales force the incentives of
increasing their compensation through commissions or bonus if the
quota is surpassed and/or recognised for superior performance. Needless
to say, to be true motivators, sales quota should be perceived as being
realistic and attainable and to an extent surpassable.

(iii) To control salespeople’s activities : Quotas provide an opportunity

to direct arid control the selling activities of sales persons. Sales

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 persons are responsible for certain activities e.g. customer calls per
day, calling on new accounts, giving a minimum number of
demonstrations and realisation of firm’s account. If the sales people
fail to attain these quotas, the company can take corrective action to
rectify the mistake.

(iv) To evaluate the productivity of sales people : Quotas provide a yard-

stick for measuring the general effectiveness of sales representatives.
By comparing salespersons’ actual results with set quotas the areas
of activities are determined where the sales force need help for
improving productivity.

(v) To control selling expenses : Quotas are also designed to keep

selling expenses within limits. Some companies reimburse sales
expenses only upto a certain percentage of sales quota. Others tie
expenses to the salesperson’s compensation in order to curb wasteful
expenditure. Expense quota helps companies to set profit quotas.

(vi) To make effective compensation plan : Quotas play an important

role in the company’s sales compensation plan. Some Indian companies
follow the practice that their salespersons will get commission only
when they exceed their assigned quotas. Companies may also use
attainment of the quotas in full or in part as the basis for calculating
the bonus. If the salesperson does not reach the minimum desired
quota, he will not be entitled for any bonus.

(vii) To evaluate sales contests results : Sales quotas are-used frequently

in conjunction with sales contests. Companies mostly use ‘performance

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 against quota’ as the main basis for giving away awards in sales
contests. Sales contests are more powerful incentives if all participants
feel they have a more or less equal chance of winning by basing awards
on percentage of quota fulfilment which is a common denominator.
Hence, it causes average salesperson to turn into above average
performers.

(B) TYPES OF QUOTAS

Differences in forecasting and budgeting procedures, management philosophy,

selling problems, and executive judgment, as well as variations in quota-
setting procedures, cause each firm to have somewhat unique’ quota. Ignoring
small differences, however quotas fall into four categories :

(i) Sales volume quota : The most commonly used quotas are those
based on sales volume. This type of quotas are set for an individual
sales person, geographical areas, product lines or distributive outlet
or for only one or more of these in combination. Sales volume quotas
are also set to balance the sales of slow moving products and fast
moving products or between various categories of customers per
sales unit. The sales volume quota may be set in terms of units of
product sales, or rupee sales .or both on overall as well as product
wise basis. Some companies combine these two and set quota on the
point basis. Points are awarded on the attainment of a certain specific
level of sales in units and rupee terms for each product/customer. For
example : A company might consider Rs.1000 equal to 1 point, Rs.2000
equal to 2 points and so on. At the same time company may award

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 3 points for unit sales of product A and 5 points-for unit sales product
B. Companies use this type of approach generally because of problems
faced in implementing either rupee sales volume or unit sales volume
quota. Unit sales volume quotas are found useful in market situations
where the prices of the products fluctuate considerably or when the
unit price of the product is rather high. Rupee sales volume quotas
are found suitable in the case of sales force, selling multiple products
to one or different types of customers.

(ii) Financial or budget quotas : Financial or budget quotas, are determined

to attain desired net profit as well as to control the sales expenses
incurred. In other words, it is set for various units in the sales organisation
to control expenses, gross margin, or net profit. The intention in
setting financial quota is .to make it clear to sales personnel that this
jobs consist something more than obtaining sales volume. It makes
personnel more conscious that the company is in business to make
a profit. Expense quotas emphasize keeping expenses in alignment
with sales volume, thus indirectly controlling gross margin and net
profit contribution. Gross margin or net profit quotas emphasize
margin and profit contributions, thus indirectly controlling sales
expenses.

Expense quotas : In order to make the sales force conscious of the

need to keep selling costs within reasonable limits, some companies
set quota for expenses linked to different levels of sales attained by
their sales force. And to ensure its conformity they even link

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 compensation incentives to keeping expenses within prescribed limits.
Since sales are the result of the selling tasks performed which vary
across sales territories, it is not easy to determine expense quotas
as percentage of sales in a uniform manner. Also very strict conformity
to expense. quota norms result in demotivation of sales force. As such
expense quota is generally used as a supplement to other types of
quotas.

Net profit quotas : Net profit quotas are particularly useful in multi
product companies where different products contribute varying level
of profits. Its emphasis is on the sales force to make right use of their
time. It is important for the management to ensure that its sales force
do not spend more time on less profitable products, because the
salespersons are costing the company the opportunity of earning
higher profits from their high margin products. In other words, it
should ensure that its salespersons spend their maximum time on
more profitable customers. The objective can be achieved by setting
a quota on net profit for its sales force, and thus, encouraging them
to sell more of high margin products and less the low margin products.

(iii) Activity quotas : Good performance in competitive markets requires

the sales force to perform the sales .as well as market development
related activities. The latter activities have long term implications on
the goodwill of the firm.

To ensure that such important activities get performed, some companies

set quotas for the sales force in terms of various selling activities
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 to be performed by them within a given period. Finally the company
must set a target level of performance for, the sales persons. Some
of the common type of activity quotas prevalent in Indian firms are
as under :

• Number of prospects called on

• Number of new accounts opened

• Number of calls made for realising company’s account

• Number of dealers called on

• Number of service calls made

• Number of demonstrations made

The chief merit of activity quota lies in its ability to direct the sales
force to perform the urgent selling activities and-important non-
selling but market development related activities in a balanced and
regular manner.

(iv) Combination Quotas : Depending upon the nature of product and

market, selling tasks required to be performed as well as selling
challenges facing the company, some companies find it useful to
set quotas in combination of the two or three types discussed above.
Rupee sales volume and net profit quotas or unit sales volume and
activity quota in a combined manner are found in common use in
a large number of consumer and industrial products companies in
India.

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(C) PROCEDURE FOR SETTING SALES VOLUME QUOTA

(i) Quotas based on sales potential : One common practice in quota

setting is to relate quotas directly to the territorial sales potentials.
These potentials are the share of the estimated total industry sales that
the company expects to realise in a given territory. A sales volume
quota sums up the effort that a particular selling unit should expend.
Sales potential represents the maximum sales opportunities open to
the same selling unit. Many companies derive sales volume quota
from sales potentials, and this approach is appropriate when - territorial
sales potentials are determined in conjunction with territorial design
or bottom-up planning and forecasting procedures are used in obtaining
the sales estimate in the sales forecast.

Thus, if the territorial sales potentials or forecasts have already been

determined and the quotas are to be related to these measures, the
job of quota setting is largely completed. For instance, let us assume
that the sales potential in territory A is Rs.300000 or 4 per cent of
the total company potential. Then management may assign this amount
as a quota for the salesperson who covers that territory. The total of
all territorial quotas then would be equal the company sales potential.

In some cases, management chooses to use the estimate of potential

as starting point in determining the quota. These potentials are then
adjusted for one or more of the factors discussed below :

Human factors : A quota may have to be adjusted downwards because

an older salesperson is covering the district. The salesperson may
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 have done a fine job for, the company for years but is now approaching
retirement age and slowing down because of physical limitations. It
would not be good human relations - or ethical - to discharge or force
the person into early retirement. Sometimes such persons are given
smaller territories with corresponding lower quotas. Likewise sometimes
new sales people are given lower quotas for the first few years until
they learn a greater level of competence.

Psychological factors : Management understands that it is human

nature to relax after a goal has been reached. Therefore, sometimes
sales managers set their quotas a little higher than the expected
potential. On the other hand management must not set the goals
unrealistically high. A quota too far, above the sales potential can
discourage the sales force. The ideal psychological quota is one that
is bit above the potential but can still be met and even exceeded by
working efficiently.

Compensation factors : Sometimes companies relate their quotas

basically to the sales potential, but adjust them to allow for the
compensation plan. In such a case, the company is really using both.
the quota and compensation systems to stimulate the sales force. For
example, one company may set its quota at 90 percent of potential.
It pays for one bonus if the quota is met and an additional bonus if
the sales reach 100 per cent of the potential.

(ii) Quotas based on past sales alone : In some organisations, sales

volume quotas are based strictly on the preceding year’s sales or on
an average of sales over a period of several years. Management sets
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 each salesperson’s quota at an arbitrary percentage increases over
sales in some past period. The only merits in this method of quota
setting are computational simplicity and low-cost administration. If
a firm follows this procedure, it should at least use an average figure
for the past several years as a base, not just the previous year’s sales.
Random or irregular events would greatly affect a sales index based
on only one year.

However, a quota setting method based on past performances alone

is subject to severe limitations. This method ignores possible changes
in a territory’s sales potential. Generally business conditions this year
may be depressed in a district, thus cutting the sales potential or
promising new customers may have moved into the district, thus
boosting the potential volume. Basing quotas on previous year’s sales
may not uncover poor performance in a given territory. A person may
have had sales of Rs.100000 last year, and the quota is increased by
5 per cent for this year. The salesperson may even reach the goal of
Rs.105000. However, the potential in the district may be Rs.200000.
This salesperson may perform poorly for years without letting the
management realize that a problem exists. Quotas set on past sales
also ignore the percentage of sales potential already achieved. Moreover,
‘chase your tail’ quotas- in which the more the salespeople sell, the
more they are supposed to sell-destroy morale and ultimately cause
top achievers to leave the company.

(iii) Quotas based on executive judgement above : Sometimes sales

volume quotas are based solely on the executive judgment, which is
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 more precisely called guesswork. Executive judgment is usually an
indispensable ingredient in a sound procedure for quota setting, but
to use it alone is certainly not recommended. Even though the manager
may be very experienced, too many risks are involved in relying solely
on this factor without referring to quantitative market measures. This
method is justified when there is little information to use in setting
quotas. There may be no sales forecast, no practical way to determine
territorial sales potential. The product may be new and its probable
rate of market acceptance is unknown, the territory may not yet have
been opened; or a newly recruited salesperson may have been assigned
to a new territory. In such situations, management may set sales
volume quotas solely on a judgement basis.

(iv) Quotas based on total market estimates : In some companies

management has neither statistics nor sales force estimates of territorial
sales potentials. These companies use top-down planning and forecasting
to obtain the sales estimate for the whole company; hence, if management
sets volume quotas, it uses similar procedures. Management may
either (i) breakdown the total company sales estimate, using various
indexes of relative sales opportunities in each territory and then make
adjustments or (ii) convert the company sales estimate into a
companywide sales quota and then breakdown the company volume
quota, by using an index of relative sales opportunities in each territory.
In the second procedure, another set of adjustment is made for differences
in territories and sales personnel before finally arriving at territorial
quotas. Note that these choices are similar the only difference being

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 whether adjustments are made only at the territorial level, or also at
the company level. The second alternative is a better choice.

(v) Quotas related only to compensation plan : Companies sometimes

base sales volume quotas solely upon the projected amounts of
compensation that management believes, sales personnel should receive.
No consideration is given to territorial sales potentials, total market
estimates, and past sales experiences, and quotas are tailored exclusively
to fit the sales compensation plan. If for example, salesperson A is
to receive Rs.5000 monthly salary and a 5 per cent commission on
all monthly sales over Rs.50,000. A’s monthly sales volume quota is
set at Rs.50,000. As long as A’s monthly sales exceed Rs.50,000,
management holds A’s compensation-to-sales ratio to 5 per cent.
Note that A is really paid on a straight-commission plan, even though
it is labeled “Salary and commission”.

Such sales volume quotas are poor standards for appraising sales
performance, they relate only indirectly, if at all, to territorial sales
potentials. It is appropriate to tie in sales force quota performance
with the sales compensation plan, that is, as financial incentive to
performers, but no sales volume quota should be based on the
compensation plan alone.

(vi) Salesperson set their own quota : Some companies turn the setting
of sales volume quotas over to the sales staff, who are placed in the
position of determining their own performance standards. The reason
for this is that sales personnel, being closest to the territories, know

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 them best and therefore, should set the most realistic sales volume
quotas. The real reason, however, is that management is transferring
the quota setting responsibilities and turns the whole problem over
to the sales staff, thinking, they will complain less if they set their
own standards. There is, indeed, a certain ring of truth in the argument
that having sales personnel set their own objectives may cause them
to work harder to attain them and complain less. But sales personnel
are seldom dispassionate in setting their own quotas. Some are reluctant
to obligate themselves to achieve what they regard as ‘too much’; and
others for this is just as common-overestimate their capabilities and
set unrealistically high quotas. Quotas set unrealistically high or low
by management or by the sales force cause dissatisfaction and results
in low sales force morale. Management should have better information,
therefore, it should make final quota decisions. Bow, for- instance,
can sales personnel adjust for changes management makes in price,
product, promotion, and other policies?

(D) CHARACTERISTICS OF A GOOD QUOTA SYSTEM

(i) Realistic attainability : If a quota is to spur the sales force to

maximum effort, the goal must be realistically attainable. If it is too
far out of reach, the salespeople will lose their incentives.

(ii) Objective Accuracy : Regardless of what type of quota management

uses, it should be related to potentials”. Executive judgement is also
required, but it should not be the sole factor in the decision.
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(iii) Ease of understanding and administering : A quota must be easy
for both management and the sales force to understand. Also, the
system should be economical to administer.

(iv) Flexibility : All quota systems need adequate flexibility. Particularly,

if the quota period is as long as a year, management may have to make
adjustments because of changes in market conditions.

(v) Fairness : A good quota system is perceived as fair to the people

involved. The workload imposed by quotas should be the same for all
sales people. However, this does not mean that quotas must be equal.
Differences in potentials, competition, and ability of the sales force
do exist.

(E) CONCLUSION

Quotas are quantitative objectives assigned to sales personnel and other units
of the selling organisation. They are intended both to stimulate performance
and to evaluate it, through communicating management’s expectations and
serving as performance measures. In successful quota systems, special pains
are taken to tie in quota setting procedures with sales potentials and planning
data from the sales forecast and sales budget. Sound judgement is required
for adjusting tentative quotas both for contemplated policy changes and for
factors unique to each territorial environment. Continuous managerial review
and appraisal and balanced flexibility in making changes in quotas and
improvements in quota setting procedures characterise successful quota
system. When based .on relevant and accurate market information, and when

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intelligently administered, quotas are effective devices for directing and
controlling sales operations.

EXAMINATION QUESTIONS :

1. What do you mean by ‘Sales Budget’? Discuss in brief the purpose

of sales budget.

2. Write in brief the sales budgetary procedure. Also discuss the important
methods of sales budgeting.

3. Define ‘Sales Quota’ and discuss in brief the different types of sales
quota.

4. Discuss the purpose of sales quota. Also write the characteristics of

a good quota system.

REFERENCES :

* Management of a Sales Force By - William J. Stanton & Rosann Spiro.

* Sales Management By Richard R. Still, Edward W. Cundiff and Norman

A.P. Govoni.

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 LESSON : 10

CONTROLLING SALES EFFORTS

INTRODUCTION

Sales executives are responsible for a myriad of activities as they are involved
in every decision regarding sales. In discharging, these complex responsibilities,
it is very difficult for a sales executive to pay adequate attention to selling
objectives and the need to achieve them at a profit to the company. Caught
up in the middle of everyday activities, the sales executives at all levels of
organization find it easy to neglect long term matters. In such a situation,
installation and operation of control technique is essential and pays off
handsomely.

If appropriately designed and skillfully implemented, control mechanisms

greatly increase the chances of achieving selling and profit objectives. The
sales budget is the key control mechanism and quotas (sales volume, profit
and activities) provide an effective means for motivating sales people to
achieve sales and profit objectives.

Sales control is an integral part of the sales management process, providing

the follow up to planning. It involves procedure not only for review but also
for the correction of a company’s sales activities.

The term sales control denotes a comprehensive effort encompassing sales

and cost analysis and periodic projects such as sales audit. Sales analysis
is the examination of sales activities, improves sales forecasting accuracy

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and directs future sales efforts. It is identifying weaknesses so that the
operations may be correctly directed towards achieving the sales objectives
and ultimately organization objectives. This point culminates at sales audit.
The another important component of sales control is cost analysis, examining
in-depth the various cost factors which influence the profitability of the
company.

OBJECTIVES OF SALES CONTROL

Sales Control mechanism, if well designed and skillfully implemented greatly

increases the chances that the entire sides organization will focus its efforts
on achieving selling and profit objectives. The main purpose of sales control
is to keep a firm’s activities on the correct line. It makes sales planning a
meaningful endeavour. Main objectives of sales control are :

1. Measurement of Sales Performance : One important objective of

sales control is the measurement of sales performance. Effective control
requires feedback that enables an evaluation of sales results achieved in the
marketplace from the standards already fixed. In fact, anything which is
measured is better performed. Accurate measurement of actual results also
form the basis for any reward system. This encourages the sales force to
supply timely feedback.

2. Spotting out Negative Performance : The second objective of sales

control is to spot out negative features of the performance and detrimental
developments early. The feedback system must be so operated that smooth
and timely reports may be collected on a frequent basis. The tighter the
control system is, the lesser impact, .a threatening event like competitive

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price drop, will have before it is discovered and counteracted. Continuous
feedback shall detect deterioration in salesperson’s performance, which may
enable the sales supervisor/manager to take corrective action timely.

3. Identifying Opportunities : A well-functioning sales control system

identify the emerging opportunities before they are evident to competitors.
The company then gets an opportunity to enter the market with the new
product before an industry-wise on rush sets in. The identification of such
an opportunity requires an entrepreneurial skill and a knack to read the
market. Sales managers are uniquely qualified to undertake this dynamic
aspect of sales control.

Sales control always looks into the question why did it happen? And ideally,
addresses the issue of what is happening. This analysis leads to the questioning
what the company can do to optimize results undercurrent circumstances.

THE SALES CONTROL PROCESS

Three major activities are involved in Sales Control Process :

1. Establishment of Performance Standards : The first step in the

control process is the establishment of quantitative and qualitative standards
against which actual performance can be compared.

(A) Quantitative Performance Standards

Most companies use quantitative performance standards. The particular

combination of standards chosen varies with the company and its marketing
situation. Quantitative standards in effect, define both the nature and desired
levels of performance. Indeed quantitative standards are used for stimulating

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good performance as well as for measuring it. They provide descriptions of
what management expects. Each person on the sales force should have
definitions of the performance aspects being measured and the measurement
units. These definitions help sales personnel make their activities more
purposeful. Sales personnel with well-defined objectives waste little time
in pursuing activities that do no contribute to reaching those objectives.

A single quantitative standard, such as’ one for sales volume attainment,
provides an inadequate basis for appraising an individual’s total performance.
In the past, the performances of individual sales personnel were measured
in terms of sales volume. Today’s sales managers realize that it is possible
to make unprofitable sales, and to make sales at the expense of future sales.
In some fields for example, industrial goods of high unit price sales result
only after extended periods of preliminary work and it is not only unfair but
misleading to appraise performance over short intervals solely on the basis
of sales volume.

Sales personnel have control over many factors affecting sales volume. They
should not be held accountable for “uncontrollable” such as differences in
the strength of competition, the amount of promotional support given to the
sales force, the potential territorial sales volume, the relative importance
of sales to national or house accounts and the amount of “wind fall” business
secured. A simple reason exists for, setting other quantitative performance
standards besides that for sales volume.

Each company selects that combination of quantitative performance standards

that befits its marketing situation and selling objectives. If necessary, it may

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develop its own unique standards designed to serve the objectives. The
standards discussed here are representatives of the many types in use.

(a) Quotas : A quota is a quantitative objective expressed in absolute terms

and assigned to a specific marketing unit. They may be in rupees, or units
of products. As the most widely used quantitative standards, quotas specify
desired levels of accomplishment for sales volume, gross margin, net profit,
expenses, performance of non selling activities and a combination of these
and similar items. When the sales personnel are assigned sales quotas,
management is answering the important question. How much for what period?
The assumption is the management knows which objectives, both general and
specific are realistic and attainable. The validity of this assumption depends
upon the market knowledge the management has and utilises in setting quotas.

(b) Selling Expense Ratio : Sales managers use this standard to control
the relation of selling expenses to sales volume. Many factors, some controllable
by sales personnel and some not, cause selling expenses to vary with the
territory, so target selling expenses ratio should be set individually of each
person on the sales force. Selling expense ratios are determined after analysis
of expense conditions and sales volume potentials in each territory. An
attractive feature of the selling expense ratio is that the sales person can
affect it both by controlling expenses and by making sales.

The selling-expense ratio has several shortcomings. It does not take into
account variations in the profitability of different products. So a sales person
who has a favourable selling expenses ratio may be responsible for
disproportionately low profits. This performance standard may cause? The

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sales person to over economize on selling expenses to the point where sales
volume suffers. Finally in times of declining general business, selling-
expense ratio’s inhibit sales personnel from exerting efforts to blaster sales
volume.

Selling-expense ratio standards are used more by industrial product companies

than by consumer product companies. The explanation traces to differences
in the selling job. Industrial prod uct firms place the greater emphasis on
personal selling and entertainment of customers; consequently, their sales
personnel incur high costs of travel and subsistence.

(c) Territorial Net Profit or Gross Margin Ratio : Target ratios of net
profit or gross margin to sales for each territory focus sales personnel’s
attention on the needs for selling a balanced line and for considering relative
profitability. Sales personnel influence the net profit ratios by selling more
volume and by reducing selling expenses. They may emphasize more profitable
products and devote more title and effort to the accounts and prospects that
are potentially the most profitable. The net profit ratio controls sales volume
and expenses as well as net profit. The gross margin ratio controls sales
volume and the relative profitability of the sales mixture, but it does not
control the expenses of obtaining and filling orders.

Net profit and gross margin ratios have shortcomings. When either is a
performance standard, sales personnel may ‘high spot’ their territories,
neglect the solicitation of new accounts and over-emphasise sales of high
profit or high margin ‘products while under-emphasizing new products that
may be more profitable in the long run. Both ratios are influenced by factors

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beyond the sales person’s control. For instance, pricing policy affects both
net profit and gross margin and delivery costs, not only vary in different
territories but are beyond the sales person’s controls. Neither ratio should
be used without recognition of its shortcomings.

(d) Territorial Market Share : This performance standard takes into

account market share, on territory to territory basis. Management sets target
market share percentages for, each territory. Management later compares
company sales to industry sales in each territory and measures the effectiveness
of sales personnel in obtaining market share. Closer control over the individual
sales person’s sales efforts is obtained by setting target market share percentages
for each product and each class of customer or even for individual customers.

(e) Sales Coverage Effectiveness Index : This standard controls the

thoroughness with which a sales person works in the assigned territory. The
index consists of the ratio of the number of customers to the total prospects
in a territory. To appraise the sales person’s efforts among different classification
of prospects, individual standards for sales coverage effectiveness are set
up for each class of customers.

(f) Call Frequency Ratio : A call frequency ratio is calculated by dividing

the number of sales calls on a particular class of customers by the number
of customers in that class. By establishing different call frequency ratio for
different classes of customers, management directs selling efforts to those
accounts most likely to produce profitable orders. Management should assure
that the interval between calls is proper neither so short that unprofitably
small orders are secured nor so long that sales are lost to competitors. Sales

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personnels who plan their own route and call schedules find target call
frequencies helpful in as much as these standards provide information essential
to this type of planning.

(g) Calls Per Day : In consumer product fields, where sales personnel
contact large numbers of customers, it is desirable to set a standard for the
number of calls per day, otherwise; some sales personnel make too few calls
per day and need help in planning their routes, in setting up appointments
before making calls or simply in starting their calls early enough in the
morning and staying on the job late enough in the day. Other sales personnel
make too many calls per day and need training in how to service accounts.
Standards for calls per day are set individually for different territories taking
into account territorial differences as to customer density, road and traffic
conditions and competitors practices.

(h) Order Call Ratio : This ratio measures the effectiveness of sales
personnel in securing orders. It is calculated by dividing the number of
orders secured by the number of calls made. Order call ratio standards are
set for each class of account. When a sales person’s order call ratio for a
particular class of account varies from the standard, the sales person needs
help in working with the class of account.

(i) Average Cost Per Call : To emphasize the importance of making

profitable calls a target for average cost per call is set. When considerable
variation exist in cost of calling on different size or classes of account,
standards are set for each category of account. Target average cost per call
standards also are used to reduce the call frequency on accounts responsible
for small orders.
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(j) Average Order Size : The usual practice is to set different standards
for different sizes and classes of customers. Using average order size standards
alongwith average cost per call standards, management controls the sales
person’s allocation of effort among different accounts and increases order
size obtained. Accomplishing this objective may require sales personnel to
reduce the frequency of calls on some accounts.

(k) Nonselling Activities : Some companies establish quantitative performance

standards for such non-selling activities as obtaining dealer displays and
cooperative advertising contracts, training distributor’s personnel, and goodwill
calls on distributor’s customers. Whenever non selling activities are expressed
in absolute terms, they are, in reality, quotas.

(B) Qualitative Performance Criteria

Certain aspects of job performance, such as personal effectiveness in handling

customer relations problems, do not lend themselves to precise measurement.
So the use of some qualitative criteria is unavoidable. Qualitative criteria
are used for appraising performance characteristics that affect sales result
especially over the long run, but whose degree of excellence can be evaluated
only subsequently. Qualitative criteria defy exact definition. Many sales
executives do not define the desired qualitative characteristics with any
exactitude instead, they arrive at informal conclusions regarding the extent
to which each sales person possess them. Other executives consider the
qualitative factors formally, and use methods to rate sales personnel against
a detailed checklist of subjective factors.

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Companies with merit rating systems differ on the desirability of using
numerical rating. Most numerical scoring systems are used in companies
that rate sales personnel primarily for detecting needed adjustment ill
compensation. Companies that use merit rating primarily to improve and
develop individual sales persons, usually do not use numerical scoring systems.

Executive judgement plays the major role in the qualitative performance

appraisal. Each firm develops its own set of qualitative criteria, based upon
the job descriptions; the manner in which these criteria are applied depends
upon the needs of management.

2. Comparison of Results with Standards : In this step, actual sales

and costs results are compared with the standards or budgeted figures.
Significant sustained differences indicate that something is wrong either
with the planning or with the operation. Consistent sales above quota or
expenses below budgeted figures indicate that something is wrong with the
planning and budgeting processes. On the other hand, if sales is below the
quota set and the spending level is above the budgeted allocations, it is, then,
certain that the process is out of control.

The causes for divergences have to be identified so that the corrective action
may be taken. A detailed analysis is, therefore, necessary to reveal the true
position. There may be two types of reasons for deviations : Controllable
and Noncontrollable. If the reason is controllable, it may be cured otherwise
the management will have to revise the standards of actions.

3. Corrective Actions : Once sales manager is able to identify correct

reason of over and under achievements, he has to take corrective actions.
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There are two options : modify the standards or alter the results. If, events
are such that rendered the plan or sales budget inadequate or in other words,
factors responsible for deviations are noncontrollable, the sales management
must revise the sales plan or sales budget taking into account the changed
market conditions. If, on the other hand, the factors responsible for changes
are controllable, alteration of results should be done by having stricter
control over sales activities.

Thus, Sales control efforts entail the evaluation of the actual performance
vis-a-vis the standards so that the necessary corrective actions can be taken
immediately to improve the performance level.

METHODS OF SALES CONTROL

(A) SALES ANALYSIS

Through sales analysis, the management seeks insights on the sales territories
where it is strong and where it is weak, the product with the most and the
least sales volume, and the type of customers who provide the most satisfactory
and the least satisfactory sales volume. Sales analysis, will then uncover
significant details why it is so. It provides necessary information, management
needs in order to allocate future sales efforts more effectively. The role of
the management in sales analysis is to make a detailed analysis of the
available data and use them properly to initiate action.

Data for Sales Analysis : Sales analysis is nothing but to collect, classify,
compare and study the company sales data. Collection of data is not a part
of analytical effort but it vitally affects the quality of sales analysis.

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Sales analysis is generally based on data already available. It is called Secondary
Data. Secondary data may be gathered either from internal sources such as
invoice or shipping records, or from external sources such as marketing
research agencies, government agencies, trade associations and trade journals.
Secondary data are often readily available but should be used with caution.
The management has to rearrange them according to its needs. Necessary
adjustments are required if they are outdated or they are classified in a
different manner. Their source and limitations should also be studied before
they are used for analysis.

Some companies maintain their internal sales records in some detailed

manner showing individual sales, sale by products, by classes of customers,
by sizes of orders, and other pertinent break downs or sales data. Data are
sometimes specifically collected for the purpose of sales analysis. This may
be called Primary Data and may be collected under the control of management
according to its needs.

The main purpose of sales analysis is to convert raw sales data into actionable
information for sales managers. This process involves editing, tabulating and
cross tabulating and also breaking them down into various ways to make them
comparable. A number of comparisons are possible such as (i) current data
can be compared with the past results measuring trends over the years, (ii)
current results of different territories, products or class of customers can
be compared with each other, or (iii) internal performance data can be
compared with external performance data i.e., performance data of the company
can be compared with the similar data of any other company or with that of

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industry. Different ratios, percentages or variances can be used for comparison
purposes.

The final step in the analysis process is interpretation or drawing conclusions

from the compiled data.

Sales analysis supplies management with background information for sales

planning. During execution of the plan, sales analysis continually compares
the actual with standards. An evaluation programme reviews both the nature
and extent of sales force efforts and influence of external variables. Once
the degree of influence of controllable and uncontrollable factors on results
are determined, management can decide whether to take corrective actions
or to revise the sales plan or both.

Principles of Application of Sales Analysis

There are two basic principles of Sales Analysis – (i) Iceberg principle, and
(ii) 80-20 principle.

i) Iceberg Principle : This principle suggests that comparison of aggregate

sales data with those of the past is not a good practice. It may be possible
that total sales revenue or sales volume reaches to an acceptable level and
may be higher than the previous year’s level, but the breakdown shows that
a number of good customers have responded a little and a number of new
accounts are added, just to set off the difference. Response from old customers
is a matter of concern and the management should take special care for
maintaining relations by making additional efforts. Thus, analysis may reveal
similar future troubles which are not clear from the aggregate data. Thus,

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the principle suggests that the data must be broken down in order to permit
insight into the performance of individual sales segments.

Sales data can be organized according to products, classes of customers or

geographical areas or all the three bases. Sales analysis for each such base
will show strong and weak points i.e., strong and weak products, or strong
and weak customers or strong and weak territories. Multiple measures are
also desirable to properly judge the performance at any of these levels.
However, absolute sales-data per unit i.e., sales revenue per product, account
or territory are meaningful and important and should be compared to results
achieved in past periods, comparison of relative performance measures are
equally important. Actual sales are commonly related to sales quotas, resulting
in quota attainment ratios. Many firms compare the actual sales with sales
potential to obtain the degree of potential realization.

(ii) Eighty-twenty Principle : This is a common experience that a

limited number of units account for a large portion of sales and vice versa.
This experience is referred to as 80-20 principle, which states that 20 per
cent of its products, customers and territories generates 80 per cent of its
sales volume. The percentage may vary but the basic pattern holds true in
most circumstances. This suggests that there is a great deal of inefficiency
and wasted efforts in personal sales that could be directed to achieve higher
sales volume.

Firms with a high level of dependence on a few accounts can become

vulnerable or even captive. A healthy account mix includes both types of
accounts i.e., small sizes and medium sized accounts. This provides stability
and may represent future growth opportunities.
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Low sales volume in a territory may be due to certain unavoidable reasons
such as inadequate efforts by territory manager, stiff competition, lack of
potential etc.

To gain meaningful insights) regarding company’s selling strengths and

weaknesses, sales must be analysed on the bases discussed below :

(a) Sales Analysis by Territory : In this method, sales managers scan the
total sales on territory basis. It assumes that each quota assigned to sales
person was based on fair and sound measurement of potential. In addition,
any unusual conditions in the individual territories such’ as intense competition,
strike by labour union or transportation etc. which made an adverse effect
on sales of the company’s product was considered in order to guide further
sales analysis. The following example will further throw light on the aforesaid
discussion.

Sales Analysis based on Territory

Territory Quota Actual Value in ‘000 Rupees

Performance
East 800 825 103%
West 900 900 100%
North 840 820 98%
South 830 900 108%

This example shows that almost all the territories achieved or exceeded their
quota except north region which achieved 98 per cent of quota. It will thus
help the sales manager to investigate the reasons for shortfall in north
territory and of best performance in south territory.
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(b) Sales Analysis by Sales person : Concentrating on the north territory,
the Sales Manager should see the sales performance of all the sales persons
working in the territory. From the figure below it is clear that out of eight
sales persons working in the territory, four have made or exceeded their
quota, three others barely missed, only one i.e. (Gupta) fell significantly
below his sales quota with a performance of only 81 per cent.

North Territory : Sales by Sales persons

Sales person Quota Actual Performance as %

of quota

Mukherjee 90 87 97

Singh 110 115 104

Sinha 107 106 99

— 105 111 106

— 106 105 99

— 108 110 102

Gupta 125 101 81

Reddy 101 101 100

Total : 852 826 97

(c) Sales Analysis by Product Line : Before asking for any explanation
from Gupta for his poor sales performance, the Sales Manager should see
his sales performance based on product line :

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Sales person : Gupta’s Sales by Product Line

Product Line Quota Actual Performance as %

of quota

Computers 12 13 108
Portable Typewriters 24 24 100
Manual Typewriters 20 6 30
Electronic Typewriters 15 15 100
Spares and Consumable 21 20 95
Total 92 78 85

It is clear from the above table that Gupta did an excellent job of reaching
product quotas with the exception of manual typewriter, where he achieved
only 30 per cent of quota. With total sales of manual typewriter running
slight ahead of the last year in all other territories and no unusual situation
in Gupta’s territory, the sales manager should look into Gupta’s customer
wise details for detecting the causes of the shortfall.

(d) Sales Analysis by Customer : Customer-wise break-up of manual

typewriters sales attained by Gupta showed that one important account i.e.
Government department was responsible for Gupta’s poor performance on
that product line. Government Department was Gupta’s biggest customer and
has been targeted for 80 percent of his entire sales quota for manual typewriters.
With an entry of another office automation company, the customer had
switched over to the same. Gupta did not feel the gravity of situation, as the
sales to Government department was taken for granted by him. If he had

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foreseen the alarming situation in time, he could have asked for assistance
by the sales manager. Analysis of Gupta’s sales by customer also validates
the existence of 80-20 principle referred above.

Accounts Quota Actual Performance as %

of quota
Banks 2 2 100
Financial Institutions 1 1 100
Educational Institutions 1 1 100
Govt. Department 24 0 0
Industrial Undertaking 1 1 100
Private Parties 1 1 100
Total 30 6 20

The above illustration clearly brings out the importance of conducting detailed
sales analysis. It also leads the sales manager to diagnose the factors responsible
for variance between targeted and actual performance. Sales analysis thus
makes a good beginning in the sales control function of the Sales Manager.

Limitations of Sales Analysis

The following are certain limitations of the Sales Analysis :

1. A serious drawback of Sales Analysis is the fact that sales are in no

way indicative of segment’s or of the entire sales functions profitability.
Profitability is the result of the inter-play between revenue and costs. Sales
analysis analyses only the sales aspect and cost analysis does not come under
its scope.

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2. Another danger of sales analysis is that as more and more sales data
become available, decision makers can become wired in detail. As this
analysis-paralysis sets in, the sales manager loses sight of the fact that
analysis is a tool and not an end in itself. It should not be used as a substitute
for but as an aid in decision making.

Thus, the tool of sales analysis should be used very cautiously and in the
interest of the firm.

(B) SALES AUDIT

A sales audit a systematic in-depth scrutiny of the entire sales operation.

It is a comprehensive appraisal of the total sales function. It scrutinizes all
selling activities, objectives, policies, procedure, strategies etc., and reports
whether they are fully carried out, implemented or achieved accordingly or
not. It aims to appraise the extent of integration of the individual inputs to
the personal selling effort, and it provides a way to identify and evaluate the
assumptions underlying the sales operation. More specifically, a Sales Audit
is a systematic, critical and unbiased review and appraisal of the basic
objectives and policies of the selling function and of the organization,
methods, procedures, and personnel employed to implement those policies
and achieve those objectives.

Sales audit covers the following areas within its scope : (i) environment of
sales management, (ii) evaluation of sales management organization, (iii)
sales management planning system, and finally (iv) evaluation of sales
management functions.

Proponents of sales audit are of the view that sales audit must stress the
importance of focusing on overall selling strategy and the methods used for
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implementing it rather than examining individual components of personal
selling operation in a piece-meal fashion.

The main purpose of the- sales audit is to uncover the opportunities for
improving the effectiveness of the sales organization. In the auditing process
strengths and weaknesses are identified and both are important for the
improvement of effectiveness. Strengths or good points may be potential for
further exploitation. The sales executive must make efforts to retain such
positive features. Weaknesses or negative points are also potential for
improvements. Sales executive must take necessary corrective actions to
improve such negative features to increase the profitability by reducing
selling costs.

Sales auditor should be from outside the organization. Sales manager if

appointed as an sales auditor, cannot do justice because he is personally
involved in planning and implementing various sales policies or programmes
or strategy. Outside auditor makes an objective review of all aspects.

Procedure of Audit : Sales auditor should follow a five step sequence that
proceeds from-fact finding to evaluation and report presentation :

i) Examination of sales objectives with respect to their precision,

appropriateness, realism and challenge.

ii) Review of the plans and policies (explicit and implicit both) whether
they are appropriate from the stand point of their consistency. The
auditor should also review the allocation of resources to individual
segments as compared with the company’s philosophy and priorities.

iii) Evaluation of the methods, programmes and procedures utilized in

plan implementation as measured against the stated objectives.

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iv) Study of organizational structure and staffing to determine adequacy
of structure, delegation, human relations and individual qualifications.
He is to see whether the organization possesses the necessary capabilities
for achieving the marketing objectives. Planning and control systems
are appropriate for the organization, organization is properly or over
or under staffed or the personnel are competent.

v) Prepare recommendations for improvement based on the appraisal of

objectives, plans, methods and organization.

The top management and sales executives must study the report as submitted
by the sales auditor and should take necessary action to improve the overall
sales efficiency. Objectives, policies, methods, plans and programmes,
procedures and strategies should be reviewed as in the light of audit report.
The audit report should be made public so that sale personnel may come to
know the weak and strong points of their working and try to improve their
efficiency wherever possible and feasible. The sales executives just seek
cooperation of all subordinates to make sales policies and strategies effective.

(C) COST ANALYSIS

Sales managers are responsible for proper utilization of sales resources and
to monitor properly the selling costs so as to keep them within desirable
limits to maintain the profitability of the concern. The continuous monitoring
of sales activities in order to have a close eye on costs is called ‘cost
analysis’. Such monitoring is necessary to improve the efficiency and
effectiveness of sales operations. Costs have to be classified and categorized
in order to reveal points for improvements.

Cost analysis, sometimes known as distribution cost analysis, can be described

as the gathering, classifying, comparing and studying of company cost data
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as they relate to the profit contribution of the sales function.

Purposes of Cost Analysis : Cost analysis serves a number of purposes and

objectives :

i) The general purpose of cost analysis is to determine the relative

profitability of particular aspects of sales operations. The specific
objective is to measure the profitability of each product, territory,
account order, or channel of distribution so as to make a decision
which product, territory, or channel of distribution is more profitable
or what minimum size of an account should be, or how smaller an
order can be and still profitable.

ii) The other purpose of cost analysis is to heighten cost-consciousness

among sales and territory managers and thus to encourage profit
rather than volume orientation. Cost consciousness will give an insight
to reduce selling expenses by best utilization of time and resources.

iii) Cost analysis may produce data useful in defending a company against
charges of price discrimination, as costs differs ‘from territory to
territory or product to product. Price discrimination may be justified
with the help of data generated by cost analysis. It proves that difference
in prices in two segments is not more than the difference in selling
expenses required to service the customers of two segments.

iv) Cost analysis may spot and correct unusual selling expense patterns.
Necessary steps should be taken to overcome such unusual trends in
selling expenses. If an upward trend in selling expenses is without a
relative change in sales volume, it should be checked immediately
otherwise it will adversely affect the profitability of the concern.

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v) Cost analysis will facilitate sales control to hold segment managers
accountable for optimum results.

Thus, Cost Analysis is necessary to improve and increase the profitability

of the concern by utilizing the resources to the optimum level.

Classification of Costs : In making cost analysis, different types of costs

are used. Depending on the perspective, they can be categorized in several
ways :

i) Costs on the Basis of Timing : On the basis of timing relative to

the obtaining of orders, costs may be classified as order-getting costs and
order-filling costs.

(a) Order-getting Costs : Such costs are speculative in nature, since

they are incurred before an order is received or in search of an order.
They include direct selling expenses, such as sales person compensation,
travel, training, entertainment expenses, advertising, sales meeting
and sales office expenses, sales promotion techniques, marketing
research and sales administrative costs.

(b) Order-filling Costs or Logistics Costs : Such costs are triggered

by sales orders. These costs are incurred generally to execute the
order. The costs include expense like warehousing, packing, material
handling, shipping, preserving, billing, credit, credit collection, bad-
debts and clerical expenses etc.

(ii) Direct and Indirect Cost : The second distinction refers to how
expenses traced to specific segments. On this basis, costs may be direct
costs and indirect costs.

(a) Direct Costs : Such sales costs are attributed directly to the sale
segments that caused the sales. These are generally determined on
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 case to case-basis. They relate either to manufacturing such as direct
materials, direct wages and direct expense etc., or to selling, where
they may include any number of the above expense items.

(b) Indirect Costs : Indirect costs cannot relate to individual sales segments.
They are totaled and distributed among all units of sales function on
some reasonable and appropriate basis. In the contribution margin
approach, these costs are common and remain undistributed.

iii) Costs on the Basis of Volume Sensitivity : A third break-down is

based on the basis of volume sensitivity of the cost behaviour. On this
basis, costs may be fixed cost or variable costs. Fixed costs remain fixed
irrespective of production or sales. They are the same at all levels of production
or sales. Examples of such costs are rent or depreciation of office building,
salaries to office employees etc. Variable costs, on the other hand vary with’
the volume or production or sales. The higher, the sales volume, the higher,
the total variable costs. If there is no production, there are no variable costs.
Variable cost per unit tend to remain constant whereas fixed costs per unit
decline with the increase in volume. One more category of costs on this basis
emerges from the above explanation i.e., semi-variable or semi-fixed costs.
Such costs are, not totally fixed or totally variable. They increase or decrease
with the increase or decrease in volume but such variations are not proportionate
to volume changes. Such costs increase in proportion less than increase in
sales volume or decrease in proportion less than decrease in sales volume.

(iv) Costs on the Basis of Control : On the basis of control, costs may
be controllable costs or uncontrollable costs. Controllable costs are influenced
by the decisions of the authority or personnel. This means, the authority
determines the actual expenditure level and is held responsible in case of

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variation. Uncontrollable costs, on the other hand, are outside the authority
of territory sales manager or sales executive and managerial- decisions
cannot influence such costs. Such costs are influenced by external factors
which are beyond the control of management.

(v) Costs on the Basis of Function : A fifth classification relates to

the function that generates and uses the cost data. On this basis; costs are
classified as natural costs or functional costs. Natural costs are the expense
classification found in accounting records such as salaries, wages, materials
and other expenses. By contrast, functional costs are ones related to specific
business activities such as selling costs, manufacturing costs, etc.

In making cost analysis, different-types of costs may be used to make the

analysis more meaningful.

Cost-Analysis Procedure :

The Cost Analysis procedure involves the four basic steps :

i) Converting Natural Costs into Functional Costs : Natural costs

are traceable in accounting records. For analysis purpose, costs obtained
from natural accounts are broken down distributed back to their points
of origin within the sales function. In other words, natural costs as
related to selling function, are grouped under various heads, each head
represents a selling activity. For instance, salaries are split among
selling, marketing research, advertising and the like activities.

ii) Allocating Functional Costs to Sales Segments : The second step

in cost analysis is the allocation of functional costs to the individual
sales segments. The basis of allocation depends upon the type of
functional account in question and the type of segment (Product,
Customer or Territory).
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iii) Determining Efficiency and Profitability of Each Segment : The
third-step in cost analysis procedure is determining efficiency and
profitability of each segment. Conclusions regarding efficiency and
profitability are drawn on several bases. One most important
measurement of efficiency is the return on investment, earned by
assets under their control. The following equation may be used for
this purpose :
Net Profit
Return on Investment = ————————
Assets employed
For the purpose of territorial analysis, the management relates this equation.
The Return on Assets Managed (ROAM) of an individual sales territory can
be determined by employing the following formula :
Contribution margin
ROAM = ——————————
Assets managed
The assets managed consists of the average accounts receivable and inventory
that are needed to adequately serve the territory under consideration. This
formula offers a useful measure for profitability analysis on a territory by
territory level.
In order to determine a segment’s efficiency, an analysis of variances has
to be conducted. The purpose of such undertaking is to identify. variances
from norms and their causes. Both sales and cost variances can be broken
down into two components :
(i) Price variance = Price differential × actual quantity.
(ii) Quantity variance = Quantity differential × standard price.
4. Deciding an Appropriate Action
The purpose of cost analysis will be defeated if no action is taken to improve
the situation. So, the fourth and final step of cost analysis is to decide on

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and take appropriate action. Two possible avenues are available for dealing
with weak products, customers or territories i.e., (i) eliminate them, or (ii)
improve their performance. If improvement is not possible, elimination is
the best exercise.
SELF-TEST QUESTIONS
1. What is sales control? Explain its objectives and also various steps
in the sales control process.
2. Identify and explain the various cost classifications used in cost
analysis.
3. Write a detailed note on ‘Sales Audit’.
4. What is sales analysis? How is it done? Also explain the limitations
of sales analysis.
REFERENCES
1. “Sales Management — Decisions, Strategies and Cases”
By Cundiff, Still and Govoni.
2. “Sales Management” By V. Das Gupta.
3. “Marketing Management” By Philip Kotler.
4. “Skills for Sales Success” By Batchelor.
5. “Selling and Sales Management” By Lancaster.
6. “Management of Sales Force” By Ford, Churchill and Walker.

All Rights Reserved by :

Directorate of Distance Education
Guru Jambheshwar University, Hisar - 125 001
Printed by : Competent Printing Press, Hisar-125001
Ph. : 01662-225100. Mobile : 98960-68720
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 All Rights Reserved by :
Directorate of Distance Education
Guru Jambheshwar University, Hisar - 125 001
Printed by : Competent Printing Press, Hisar-125001
Ph. : 01662-225100. Mobile : 98960-68720
Bachelor of Business Administration
BBA - 305
SALES MANAGEMENT

Course Design and Preparation Team

Dr. S. B. Anand Dr. B. S. Bodla

Reader Reader
Deptt. of Commerce Deptt. of Business Management
K.U. Kurukshetra, Hisar-136119 G. J. University, Hisar-125001

Dr. S. C. Davar Dr. Atul Dhingra

Reader Reader
Deptt. of Commerce Deptt. of Management
K.U. Kurukshetra, Hisar-136119 CCS HAU, Hisar

Dr. H. Bansal Mr. M. R. P. Singh

Reader Lecturer
Deptt. of Business Management Deptt. of Business Management
G. J. University, Hisar-125001 G. J. University, Hisar-125001

Directorate of Distance Education

Guru Jambheshwar University
HISAR-125001