CHAPTER FIVE

CHOICES IN SALES FORCE ORGANIZATION

ORGANISATIONAL STRUCTURE
Perhaps the classic form of organizing a sales force is along geographical lines,
but the changing needs of customers and technological advances have led
many companies to reconsider their sales force organization.

The figure shows organization structures: (a) geographical structure – the

area sales manager level is optional: where the number of salespeople (span of
control) under each regional manager exceeds eight, serious consideration may
be given to appointing area managers; (b) product specialization structure;
(c) industry-based structure; (d) account-size structure

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1. Geographical Structure

An advantage of this form of organization is its simplicity. Each salesperson is

assigned a territory over which to have sole responsibility for sales
achievement. Their close geographical proximity to customers encourages the
development of personal friendships which aids sales effectiveness. Also,
compared with other organizational forms, e.g. product or market specialization,
travelling expenses are likely to be lower.

A potential weakness of the geographical structure is that the salesperson is

required to sell the full range of the company’s products. They may be very
different technically and sell into a number of diverse markets. In such a
situation it may be unreasonable to expect the salesperson to have the
required depth of technical knowledge for each product and be conversant
with the full range of potential applications within each market. This expertise
can only be developed if the salesperson is given a more specialized role. A
further related disadvantage of this method is that, salespeople in discrete
geographical territories, covering all types of customer, are relatively weak in
interpreting buyer behavior patterns and reporting changes in the operational
circumstances of customers compared with salespeople organized along more
specialized lines.
2. Product Specialization Structure
One method of specialization is along product lines. Conditions that are
conducive to this form of organization are where the company sells a wide range
of technically complex and diverse products and key members of the decision-
making unit of the buying organizations are different for each product group.
However, if the company’s products sell essentially to the same customers,
problems of route duplication (and hence higher travel costs) and customer
annoyance can arise. Inappropriate use of this method can lead to a customer
being called upon by different salespeople representing the same company on
the same day. When a company contemplates a move from a geographically-
based to a product-based structure, some customer overlap is inevitable, but if
only of a limited extent the problem should be manageable. A move from

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geographic to a product-based structure raises costs as keeping the
same number of salespeople means increased territory size.

A variant on the more common product line specialization is to divide the sales
force according to new and existing products (sometimes called functional
specialization). In industrial selling, companies sometimes separate their sales
forces into development and maintenance sales teams. The development
salespeople are highly trained in handling very technical new products. They will
spend considerable time overcoming commercial, technical and installation
problems for new customers.

Strengths &weaknesses of geographic and product specialization in

organizational structures

A major reason why companies have moved to a development/maintenance

structure is that belief that one of the causes of new product failure is the
inadequacy of the sales force to introduce the product. Perhaps the cause of this
failure is the psychological block each salesperson faces in terms of possible
future problems with the buyer–seller relationship if the product does not meet

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expectations. Because of this, the salesperson is likely to doubt the wisdom of
giving an unproven product their unqualified support. Employment of a
development sales team can reduce this problem, although it is often only large
companies that can afford such a team. This approach allows salespeople to
specialize in the skills needed to sell new products, ensures that new products
receive the attention needed to sell them, and eliminates competition for a
salesperson’s time between the selling of new and existing products providing
clarity of purpose. Some pharmaceutical companies use this form of sales force
organization.
3. Customer-Based Structures
The problem of the same customer being served by product divisions of the
same supplier, the complexity of buyer behavior, which requires not only input
from the sales function but from other functional groups (such as engineering,
finance, logistics and marketing), centralization of purchasing, and the immense
value of some customers have led many suppliers to rethink how they organize
their sales force. Companies are increasingly organizing around customers and
shifting resources from product or regional divisions to customer-focused
business units.

4. Market-Centered Structure

Another method of specialization is by the type of market served. Often in

industrial selling the market is defined by industry type. Thus, although the
range of products sold is essentially the same, it might be sensible for a
computer firm to allocate its salespeople on the basis of the industry served,
e.g. banking, manufacturing companies and retailers, given that different
industry groups have widely varying needs, problems and potential applications.
Specialization by market served allows salespeople to gain greater insights into
these factors for their particular industry, as well as to monitor changes and
trends within the industry that might affect demand for their products. The cost
of increased customer knowledge is increased travel expenses
compared with geographically determined territories.
5. Account-Size Structure

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Some companies structure their sales force by account size. The importance of
a few large customers in many trade and industrial markets has given rise to the
establishment of a key or major account sales force. The team comprises senior
salespeople who specialize in dealing with large customers that may have
different buying habits and demand more sophisticated sales arguments than
smaller companies. The team will be conversant with negotiation skills since
they are likely to be given a certain amount of discretion in terms of discounts,
credit terms, etc., in order to secure large orders. The range of selling skills
required is therefore wider than for the rest of the sales force, who deal with the
smaller accounts. Some organizations adopt a three-tier system, with senior
salespeople negotiating with key accounts, ordinary salespeople selling to
medium-sized accounts, and a telemarketing team dealing with small accounts.
A number of advantages are claimed for a key account sales force
structure:

1. Close working relationships with the customer. The salesperson knows

who makes what decisions and who influences the various players involved
in the decision. Technical specialists from the selling organization can call on
technical people (e.g. engineers) in the buying organization and salespeople
can call upon administrators, buyers and financial people armed with the
commercial arguments for buying.
2. Improved communication and co-ordination. The customers know that a
dedicated salesperson or sales team exists so that they know who to contact
when a problem arises.
3. Better follow-up on sales and service. The extra resources devoted to
the key account mean there is more time to follow up and provide service
after a major sale has been made.
4. More in-depth penetration of the DMU. There is more time to cultivate
relationships within the key account. Salespeople can ‘pull’ the buying
decision through the organization from the users, deciders and influencers to
the buyer, rather than the more difficult task of ‘pushing’ it through the

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 buyer into the organization, as is done with more traditional sales
approaches.
5. Higher sales. Most companies who have adopted key account selling claim
that sales have risen as a result
6. The provision of an opportunity for advancement for career
salespeople. A tiered sales force system with key (or national) account
selling at the top provides promotional opportunities for salespeople who
wish to advance within the sales force rather than enter a traditional sales
management position.

The term national account is generally considered to refer to large and

important customers who may have centralized purchasing departments that
buy or co-ordinate buying for decentralized, geographically dispersed branches
that transcend sales territory boundaries. Selling to such firms often
involves the following:
1. Obtaining acceptance of the company’s products at the buyer’s
headquarters.
2. Negotiating long-term supply contracts.
3. Maintaining favorable buyer–seller relationships at various levels in the
buying organization.
4. Establishing first-class customer service.
The customer or small group of customers is given special attention by one key
person (often known as a national account manager) or team headed by this
person. This allows greater co-ordination than a geographically based system
where each branch would be called upon by a different salesperson as part of
the job of covering their territory. This depth of selling activity frequently calls
for the expertise of a range of personnel in the supplying company in addition to
the salesperson. It is for this reason that many companies serving national
accounts employ team selling.

Team selling involves the combined efforts of such people as product

specialists, engineers, sales managers and even directors if the buyer’s
decision-making unit includes personnel of equivalent rank. Team selling

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provides a method of responding to the various commercial, technical and
psychological requirements of large buying organizations.

Companies are increasingly structuring both external and internal sales staff on
the basis of specific responsibility for accounts. Examples of such companies are
those in the electronics industry, where internal desk staff are teamed up with
outside staff around ‘key’ customers. These company sales forces are able, with
reasonable accuracy, to forecast future sales levels at these key locations.
Further, an in-depth understanding of the buyer’s decision-making unit is
developed by the salesperson being able to form relationships with a large
number of individual decision-makers. In this way, marketing staff can be kept
informed of customer requirements, enabling them to improve products and
plan effective communications.

5. New/Existing Account Structure

A further method of sales organization is to create two teams of salespeople.

The first team services existing accounts, while the second concentrates on
seeking new accounts.

This structure recognizes the following:

1. Gaining new customers is a specialized activity demanding prospecting skills,
patience, ability to accept higher rejection rates than when calling upon
existing customers, and the time to cultivate new relationships.
2. Placing this function in the hands of the regular sales force may result in its
neglect since the salespeople may view it as time which could be better
spent with existing customers.
3. Salespeople may prefer to call upon long-established customers whom they
know, rather than prospects where they might face rejection and
unpleasantness.

New account salespeople have been found to spend more time exploring the
prospect’s needs and provide more information to management regarding buyer
behavior and attitudes than salespeople working under a conventional system.

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The deployment of new account sales forces is feasible for large companies with
many customers and where there is a continual turnover of key accounts that
have to be replaced. The new account structure allows better planning of this
vital function and eliminates competition between prospecting and servicing.
6. Mixed Organization
This section has discussed the merits and weaknesses of the major sales
organizational structures. In practice a combination may be used. For example,
in order to minimize travelling expenses, a company using a two-product group
structure may divide the country into geographically based territories with two
salespeople operating within each one.

Like many selling decisions, the choice of sales organization is not a black and
white affair, which is why many sales forces are a blend of general territory
representatives and specialists. Many companies use all forms of selling
simultaneously: for very big accounts they use key account specialists; for the
balance of small and medium accounts they use general territory
representatives, perhaps supplemented by product application specialists who
help generalists across several territories.

Strengths and weaknesses of customer-based organizational structures

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The challenge to any sales manager is to know how to assess the options.
Financial, customer coverage and organizational flexibility trade-offs need to be
made. The company must balance hard numbers with what the customer wants,
which often means some form of specialization, and what the competition are
providing. Increasingly, the customer wants to buy total solutions and demands
value-added services rather than one-off transactions. As companies
internationalize, consideration of sales force organization on a global scale
needs to be made. The following case discussion covers a number of relevant
issues.

Determining the Size of the Sales Force

The workload approach

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The workload approach allows the number of salespeople needed to be
calculated, given that the company knows the number of calls per year it wishes
its salespeople to make on different classes of customer. Talley showed how the
number of salespeople could be calculated by following a series of steps:

1. Customers are grouped into categories according to the value of goods bought
and potential for the future.
2. The call frequency (number of calls on an account per year) is assessed for each
category of customer.
3. The total required workload per year is calculated by multiplying the call
frequency and number of customers in each category and then summing for all
categories.
4. The average number of calls per week per salesperson is estimated.
5. The number of working weeks per year is calculated.
6. The average number of calls a salesperson can make per year is calculated by
multiplying (4) and (5).
7. The number of salespeople required is determined by dividing the total annual
calls required by the average number of calls one salesperson can make per
year.

Here is an example of such a calculation. The formula is:

Number of salespeople= Number of customers * Call frequency

Average weekly call rate * Number of working weeks per year
When prospecting forms an important part of the salesperson’s job, potential
customers can be included in the customer categories according to potential.
Alternatively, separate categories can be formed, with their own call rates, to
give an estimation of the workload required to cover prospecting. This is then
added to the workload estimate derived from actual customers to produce a
total workload figure.

The applicability of this method is largely dependent on the ability of

management to assess confidently the number of calls to be made on each
category of customer. Where optimum call rates on customers within a
particular category vary considerably, management may be reluctant to

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generalize. However, in a company quoted by Wilson,6 although call rates
varied between one and ten calls per day, for 80 per cent of the days seven or
eight calls were made.

The method is of particular relevance to companies who are expanding into new
geographical territories. For example, a company expanding its sphere of
operation from England to Scotland could use a blend of past experience and
judgment to assess feasible call frequencies in Scotland. Market research could
be used to identify potential customers. The workload approach could then be
used to estimate the number of salespeople needed.

Establishing Sales Territories

Territory design is an important organizational issue since it is a major

determinant of salespeople’s opportunity to perform well and their ability to
earn incentive pay where incentives are linked directly to territory-level
individual performance. Faulty territory design decisions prevent the best use of
expensive selling activities and can harm salespeople’s attitudes, behavior and
effectiveness when they believe they have been treated unfairly in territory
allocation. Indeed, research has shown that the more satisfied sales managers
are with territory design, the greater the level of salesperson and sales unit
effectiveness. It is therefore important for sales managers to pay much attention
to the establishment of effective territories. There are two basic considerations
used to allocate salespeople to territories. First, management may wish to
balance workload between territories. Workload can be defined as follows:
W = niti + ntk
where workload; number of calls to be made to customers in category i; average
time required at call for each category i; total number of calls to be made;
average time required to travel to each call. This equation is useful because it
highlights the important factors which a sales manager must take into account
when assessing workload. The number of calls to be made will be weighted by a
time factor for each call. Major account calls are likely to be weighted higher
than medium and small active accounts since, other things being equal; it

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makes sense to spend longer with customers who have greater potential. Also,
calls on prospects may have a high weighting since salespeople need extra time
to develop a new relationship and to sell themselves, their company and its
products. In addition, the time required to travel to each customer must be
taken into account. Territories vary in their customer density so travel time must
be allowed for in the calculation of workload

The data will be determined partly by executive judgment, e.g. how long to
spend with each customer type on average, and, where a sales force already
exists, by observation, e.g. how long it takes to travel between customers in
different existing territories. These data can be obtained during field visits with
salespeople and estimates of current workloads calculated. For new sales teams
the input into the formula will of necessity be more judgmental, but the equation
does provide a conceptual framework for assessing territory workload.

The second consideration management may wish to use in working out

territories is sales potential. Equalizing workload may result in territories of
widely differing potential. This may be accepted as a fact of life by some
companies and dealt with by assigning their best salespeople to the territories
of higher potential. Indeed, moving salespeople from lower to higher potential
territories could be used as a form of promotion. If company policy dictates that
all salespeople should be treated equally, then a commission scheme based on
the attainment of sales quotas, which vary according to territory potential,
should establish a sense of fairness. However, if, after preliminary determination
of territories by workload, sales potentials are widely disparate, it may be
necessary to carry out some adjustment. It may be possible to modify adjacent
territory boundaries so that a high potential territory surrenders a number of
large accounts in return for gaining some smaller accounts from a neighboring
lower potential territory. In this way differences in sales potentials are reduced
without altering workload dramatically. If this is not easily done it may be
necessary to trade off workload for potential, making territories less similar in
terms of workload but more balanced in terms of sales potential.

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Designing territories call for a blend of sound analysis and plain common sense.
For example, it would be illogical to design territories purely on the basis of
equalizing sales potential if the result produced strips of territory which failed to
recognize the road system (especially motorways) as it exists in the country
today.
Territory revision
A sales territory should not be considered a permanent unit.
The following factors may suggest the need for territory revision:
 Change in consumer preference;
 Competitive activity;
 Diminution in the usefulness of chosen distribution channels;
 Complete closure of an outlet or group of stores;
 Increases in the cost of covering territories;
 Sales force complacency
Before deciding that changes are necessary, a number of aspects of the sales
effort should be investigated. The most common indicators that something
might be wrong with the territorial structure are falling sales volume. However,
great care must be taken before accepting this as a reason for territory revision.
Sales may be falling because the selling and promotion effort within the territory
is not as effective as it should be. If this is the case, then it is not the boundaries
of the sales area that need revision.

Salespeople may be calling only on the prospects which offer the greatest
potential. If there is no systematic plan for the territory, salespeople may make
a poor job of planning their calls and this may result in an increase in non-selling
time (e.g. travelling time). Furthermore, the supervision may be at fault. If sales
personnel are not supervised properly, they may lose their enthusiasm for the
job or even for the product.

Before changes are implemented, a reappraisal of market potential should take

place. It may be that the original distributors of the products are in need of
replacement or motivation because they have become disenchanted with the
company, its products or policies. Consumer acceptance of the product may

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need to be investigated before territories are revised. This may require a limited
market survey. The current activities of competitors should also be investigated.

If territories are to be revised, the sales force must be fully informed about the
extent of the changes and the reasons behind them. The extent to which the
boundaries are changed will be governed by the need to increase coverage,
reduce costs or increase sales. The sales manager should enlist the aid of
supervisors and salespeople when the task of altering territories begins. While
the overall design of territories, size, number of customers, etc., are the
responsibility of the sales manager, once allocated, the salesperson too
(sometimes in conjunction with the sales manager) can play an important role in
managing this territory in order to achieve maximum sales effectiveness. In fact,
much of this aspect of territory management comes down to effective self-
management on the part of the salesperson.

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