Session I - New Delhi Institute of Management

Session I

SALES MANAGEMENT:

ITS NATURE, REWARDS, AND

RESPONSIBILITIES

2

UNIT 1

WHAT IS SALES MANAGEMENT?

Sales management is the attainment of sales force

goals in an effective and efficient manner through:

• Planning

• Staffing

• Training

• Leading

• Controlling organizational resources3

FIGURE: THE SALES MANAGEMENT PROCESS

Sales Management Functions

4

PLANNING

The conscious, systemic process of making

decisions about goals and activities that an

individual, group, work unit, or organization will

pursue in the future and the use of resources

needed to attain them.

5

STAFFING

Activities undertaken to attract, develop, and

maintain effective sales personnel within an

organization.

6

SALES TRAINING

The effort put forth by an employer to provide the

salesperson job-related culture, skills, knowledge,

and attitudes that result in improved performance

in the selling environment.

7

LEADING

The ability to influence other people toward

the attainment of objectives.

8

CONTROLLING

Monitoring sales personnel’s activities,

determining whether the organization is on target

toward its goals, and making corrections as

necessary.

9

Sales Management is the attainment of

sales goals in an ethical, efficient, and

effective manner.

SALES PERFORMANCE

10

The sales manager is the most important person in a sales organisation. All

activities are based on his functions and responsibilities. The following are

some of the principal duties of a sales manager:

1. Organising sales research, product research, etc.

2. Getting the best output from the sales force under him.

3. Setting and controlling the targets, territories, sales experiences,

distribution expenses, etc.

4. Advising the company on various media, sales promotion schemes, etc.

5. Monitoring the company’s sales policies.

Roles of Sales Manager: Duties and Responsibilities

11

Cont…

.

In the table, Al Reid gives the steps necessary for getting success in

selling:

To yourself To your company To your customers

Increase basic selling skills.

Develop management

abilities.

Keep pace with changes,

trends and developments in

your territory.

Study the latest products,

promotion policies and

procedures.

Be alert to new sales and

merchandising ideas.

Be proud of your association

with your company.

Maintain the company

standing and standards with

all customers.

Inform the headquarters and

your supervisors, through

established channels, about

changes and developments in

your territory.

Be prompt in handling

records, reports,

correspondence, etc.

Work closely with decision-

takers and influencers in each

account.

Point out the advantages of

an association with your

company.

Keep accounts current and

up-to-date on all company

advertising and promotional

activities.

Suggest ideas, methods,

techniques and tips that can

stimulate sales.

Territory Sales Manager’s Job Responsibilities

Cont…

.

Grow, so that you can assume

greater responsibilities as

opportunities permit.

Maintain the appearance and

goodwill expected of a territory

sales manager.

Analyse your weak and strong

points and then think about

them.

Cut selling costs by

economical routing, good use

of time, planning and greater

awareness of opportunity.

Check demand and movement

of products in the territory.

Report activities of the

competitors.

Strive to reach the best goals.

Ask for help, when you need it.

Cooperate with other

departments of the company.

Inform the customers about

the trends in their areas.

Handle complaints effectively

and to the complete

satisfaction of the

complainants.

Suggest the best technique for

selling your products to the

customers.

Organise presentations to

inform and save time.

Make the customers aware of

the changes in the company’s

policies or procedures.

Stimulate and maintain

enthusiasm for your products.

Build and maintain goodwill.

Functions of Personal Selling

Personal selling is an oral presentation in face to face conversation with one

or more prospective customers for the purpose of making sales. The main

functions of personal selling are as follows:

1. Provide service to customers (Introduce the product, explain the right

use, Convince them etc.)

2. To sell the product

3. Maintain the sales record

4. Executive Function

5. Develop goodwill

6. Achieve sales target 14

Changing Face of Personal Selling

Modern sales approach is based on the following

parameters

1. Value Sharing.

2. Relation Building.

3. Role Playing.

4. Changing Approach.

15

Benefits of personal selling

1. Availability of expertise

2. Early access to relevant market information

3. Availability to be flexible regarding processes, timing

4. Faster, shorter contracts

5. Economies of information sharing

6. Lower cost of selling

7. Knowledge of other uses or applications 16

Steps in Personal Selling

Successful personal selling calls for an integrated approach

devised from the experience of the sales personnel. The

approach comprises the steps as shown in the figure here. Each

of these steps are further described in brief.

Steps in Personal Selling

17

Prospecting

Prospecting is the process of identifying prospective buyers of the

product. A prospect is qualified if he has the authority, need, ability

and eligibility to buy. There are different ways to identify prospects.

Some of the most frequently used methods are described below:

Acquaintance References

Cold Calling

Centre of Influence Method

Personal Observation Method

Direct Mail or Telephone Method

Company’s Records

Newspapers

Retailers18

Pre-approach

It emphasises that the salesman should know, after identifying the

prospect in the prospecting stage, the prospect’s likes and dislikes,

his needs, preferences, habits, nature, behaviour, economic and

social status etc.

Significance of Pre-Approach

1. Salesman concentrates only on the prospects and not the

suspects.

2. S/He is able to give a sales presentation more efficiently,

effectively and with confidence.

3. It does not waste the prospect’s time and energy since the

salesman is already aware of the needs and preferences of the

prospect.19

Cont….

Approaching

In this stage the prospect and the salesman come in contact with

each other face to face.

The salesman has an opportunity to understand and interact with

the prospect in a better way.

Salesman should put forward his best efforts to make the best use

of this opportunity in getting the attention of the prospect and to

convince him to buy the product.

Getting the attention of the prospect and persuading him to buy

are the two main objectives of a salesman. 20

Cont….

Key guidelines for successful approach

Prior Appointment

Timing

Command

Relaxed Atmosphere

Open Mindedness

Courtesies

Effective Presentation

Follow up21

Cont….

Presentation

Quick presentation creates a good impression.

Attractively packaged, decorated and well-organised.

Should explain the product with its features and price

advantage to the customer in simple and easy terms.

Customer be shown the kind of quality that he is looking for.

Helps the salesman to prove the features of the product and

emphasise its genuineness.22

Cont….

Demonstration

Demonstration is an exercise to prove the characteristics of the

product.

It highlights various attributes of the product such as utility,

performance, service and quality.

It is only during the demonstration that the customer gets an

opportunity to verify the facts about the product.

Demonstration is imperative and essential for a prospect to make

a buying decision.23

The Close

This is the last stage of any sales presentation.

The main aim of the close is to convince the prospect to sign

the order form or to place an order immediately rather than in

the future.

It is also important that through proper planning, prospecting,

presentation and demonstration the salesman should try to

capture the attention of the prospect and not let the prospect

change his mind.24

Cont….

Relationship of Salesmanship with Sales Management

and personal Selling

Salesmanship & Personal Selling

1. The ability to quickly develop rapport with their prospective

customers.

2. A desire to truly help their customers.

3. The habit of asking questions to gather information before making a

pitch.

4. Sticking to a consistent, proven sales process. 25

FORECASTING MARKET DEMAND

A marketing decision support system (MDSS) is an ongoing, future-oriented structure designed to generate, process, store, and later retrieve information to aid decision making in an organization’s marketing program.

It involves problem-solving technology composed of people, knowledge, software, and hardware “wired” into the sales management process.

26

USES OF SALES FORECASTS

A sales forecast is the estimated ` or unit sales for a specific future time period based on

- proposed marketing plan

- assumed market environment.

27

1. A sales forecast becomes a basis for setting and maintaining a

production schedule – manufacturing.

2. It determines the quantity and timing of needs for labor, equipment,

tools, parts, and raw materials – purchasing, personnel.

3. It influences the amount of borrowed capital needed to finance the

production and the necessary cash flow to operate the business –

controller.

4. It provides a basis for sales quota assignments to various segments of

the sales force – sales management.

5. It is the overall base that determines the company’s business and

marketing plans, which are further broken down into specific goals –

marketing officer.

A sales forecast is important for at least five reasons:

28

Marketing Plan

Sales Forecasts Sales Force Budget

FIGURE: PLANNING/FORECASTING/BUDGETING SEQUENCE

29

THE FORECASTING PROCESS

The forecasting process refers to a series of procedures used to forecast.

30

Forecast

ObjectiveDetermine Dependent and

Independent Variables

Develop Forecast

Procedure

Select Forecast

Analysis Method

Total Forecast

Procedure

Gather and Analyze

Data

Present Assumptions

about Data

Make and Finalize

Forecast

Evaluate Results

versus Forecast

FIGURE: THE FORECASTING PROCESS

31

FIGURE 5.3 BASIC STEPS IN BREAKDOWN METHOD OF FORECASTING SALES

General Environment Forecast

Industry Sales Forecast

Company Sales Potential

Company Sales Forecast

Product Lines

Individual Products for

Customers-Territories-Regions-Devisions-

India-World

32

Industry sales forecast, or market potential, is

the estimated sales for all sellers.

Company sales potential is the maximum

estimated or potential sales the company may

reach in a defined time period under given

conditions.

The company’s share of the estimated sales for

an entire industry is referred to as market

share.

33

SALES FORECASTING METHODS

• Survey methods are qualitative and include

executive opinion, sales force composite, and

customer’s intention surveys.

• Mathematical methods are test markets,

market factors, trend analysis, and

correlation analysis.

Two categories of sales forecasting methods exist:

34

Survey Methods

Executive

Opinion

User’s

Expectation

Sales Force

Composite

Build-to-

Order

Mathematical Methods

Test Market Regression

Naive Trend

Moving

Average

Exponential

Smoothing

FIGURE: THE MORE POPULAR OF MANY FORECASTING METHODS

35

SURVEY FORECASTING METHODS

Four basic survey methods are

• Executive Opinion

• Sales Force Composite

• User’s Expectations

• Build-to-Order

36

Executive Opinion

1. By one seasoned individual (usually

in a small company).

2. By a group of individuals, sometimes

called a “jury of executive opinion.”

Executive forecasting is done in two

ways:

37

Delphi Method

Administering a series of

questionnaires to panels of experts.

38

Sales Force Composite

Obtaining the opinions of sales

personnel concerning future sales.

User’s Expectations

Consumer and industrial

companies often poll their actual or

potential customers.

39

Build-to-Order

Companies build final products only after firm orders are placed.

MATHEMATICAL FORECASTING

METHODS

Test markets are a popular method of

measuring consumer acceptance of new

products.

40

Time Series Projections

Time series methods use chronologically ordered raw data.

41

Naïve Method

Next Year’s Sales = This Year’s Sales X This Year’s

SalesLast Year’s Sales

Moving Average

Moving averages are used to allow

for marketplace factors changing at

different rates and at different times.

42

Regression Analysis

Regression analysis is a statistical

method used to incorporate independent

factors that are thought to influence

sales into the forecasting procedure.

Linear Relationship

Population

(A)

Sale

s

0

Curvilinear Relationship

Population

(B)

Sale

s

0

FIGURE: REGRESSION ANALYSIS

43

Have You Developed

a Good

Sales Forecasting

Process?

Market Decision Support System

Breakdown Use Multiple

Forecasting

Methods Buildup

FIGURE: QUESTIONS TO ANSWER TO IMPROVE CHANCES OF HITTING THE

FORECASTING BULL’S-EYE

Hav

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Con

sider

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the

Bas

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Incr

easing

Accura

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and S

elec

ting

Your

Forec

astin

g Met

hod?

Whic

h For

ecas

t(s)

Met

hod Should

You Use

?

Could O

utside

Sources Help?

Could the C

omputer

and Software H

elp?

90%

80%70%

60%

140%

130%

120%

110%F

O

R

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C

A

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44

TABLE: GUIDE TO SELECT BEST FORECASTING METHOD

FORCASTING

METHOD TIME SPAN

MATHEMATICAL

SOPHISTICATION

COMPUTER

NEED ACCURACY

Executive Opinion Short to medium Minimal Not essential Limited

Delphi Method Medium to long Minimal Not essential Limited; good in dynamic

conditions

Sales Force Composite Short to medium Minimal Not essential Accurate under dynamic conditions

User’s Expectations Short to medium Minimal Not essential Limited

Test Markets Medium Needed Needed Accurate

Naïve Method Present to medium Minimal Not essential Limited

Moving Average Short to long Minimal Helpful Accurate under stable conditions

Exponential Smoothing Short to medium Minimal Helpful Accurate under stable conditions

Least Squares Short to long Needed Desirable Varies widely

Regression Analysis Short to Medium Needed Essential Accurate if variable relationships

stable

45

THE SALES MANGAGER’S BUDGET

The sales force budget is the

amount of money available or

assigned for a definite period,

usually one year.

46

• Planning

• Coordination

• Control

BUDGET

PURPOSES

TABLE: SALES FORCE OPERATING COSTS

1. Base salaries 4. Special incentives

a. Management 5. Office expenses

b. Salespeople 6. Product samples

2. Commissions 7. Selling aids

3. Other compensation 8. Transportation expenses

a. Social Security 9. Entertainment

b. Retirement plan 10. Travel

c. Stock options

d. Hospitalization47

BUDGETS SHOULD BE FLEXIBLE

Sales, costs, prices, or the competition’s

marketing efforts are some factors that may

be higher or lower than expected.

48

WHAT IS A SALES TERRITORY?

A sales territory is composed of

a group of customers or a

geographic area assigned to a

salesperson.

WHO ISRESPONSIBLE FOR

TERRITORIAL DEVELOPMENT?

Development of sales territories

is usually the responsibility of

the sales manager overseeing

the larger sales units within the

organization.

WHY ESTABLISH SALES

TERRITORIES?

• To obtain thorough coverage of the market.

• To establish a salesperson’s responsibility.

• To evaluate performance.

• To improve customer relations.

• To reduce sales expense.

• To allow better matching of salesperson to customer.

• To benefit salespeople and the company.

Why sales territories may not be developed?

• Salespeople may be more motivated if they

are not restricted.

• The company may be too small.

• Management may not want to take the time,

or have the know-how.

• Personal friendship may be the basis for

attracting customers.

FACTORS TO CONSIDER WHEN DESIGNING SALES

TERRITORIES

Sales force objectives may be based on factors such as

- contribution to profits,

- return on assets,

- sales/cost ratios,

- market share, or

- customer satisfaction.

FIGURE: FACTORS TO CONSIDER WHEN DESIGNING TERRITORIES

Select Basic

Control Unit

Analyze

Workload

Determine Basic

Territories

Assign to

Territories

Customer

Contact Plan

Evaluate, Revise

if Needed

SELECT BASIC CONTROL UNITS

• States

• Counties

• Cities and zip-code areas

• Metropolitan statistical areas

• Trading areas

• Major/ Key accounts

• A combination of two or more factors

ANALYZE SALESPEOPLE’S WORKLOADS

Workload is the quantity of work expected

from sales personnel. Three of the main

influences on workload involve

- the nature of the job,

- intensity of market coverage, and

- type of products sold.

DETERMINE BASIC TERRITORIES

The breakdown approach uses

factors such as sales, population, or

number of customers.

Forecasted SalesAverage Sales per SalespersonSales Force Size =

1. Forecast sales and determine sales potentials.

4. Tentatively establish territories.

2. Determine the sales volume needed for each territory.

5. Determine the number of accounts for each territory.

3. Determine the number of territories.

6. Finalize the territories, and draw the boundary lines.

TABLE: SIX STEPS TO CONSIDER WHEN

DETERMINING A FIRM’S BASIC TERRITORIES

CUSTOMER CONTACT PLAN

The customer contact plan involves

scheduling sales calls and routing a

salesperson’s movement around the

territory.

Scheduling refers to establishing a fixed time when the salesperson will be at a customer’s place of business.

In theory, strict formal route designs enable the salesperson to:

1. Improve territorial coverage.

2. Minimize wasted time.

3. Establish communication between management and

the sales force in terms of the location and activities

of individual salespeople.

FIGURE: THREE BASIC ROUTING PATTERNS

Base cc

cccc

Straight-Line PatternFirst Call

Work Back

Basec

c

c c

cc

c c

c

c

cc

cc

cc

ccc

ccc

c

Cloverleaf Pattern

Each Leaf Out and

Back Same Day

Major-City Pattern

1 - Downtown

1

2 3

5 4

OPEN SALES TERRITORIES

Open sales territories are those left vacant until

new salespeople are assigned to them. Vacant

territories experience the following:

• Lost sales due to the vacancy.

• Lost sales due to the time needed for the

new salesperson to build sales productivity.

THE SALES TERRITORY IS A BUSINESS

THE RIGHT SALESPERSON PAYS OFF

Sales leakage refers to the lost sales

due to both the vacancy and the time

required for the new salesperson to

produce at average.

WHAT IS A QUOTA?

A quota refers to an expected performance objective.

Quotas are tactical in nature and thus derived from the sales force’s strategic objectives.

WHY ARE QUOTAS IMPORTANT?

• Quotas provide performance targets.

• Quotas provide standards.

• Quotas provide control.

• Quotas provide change of direction.

• Quotas are motivational.

TYPES OF QUOTAS

• Sales volume quotas.

• Breakdown total sales volume.

• Profit quotas.

• Expense quotas.

• Activity quotas.

• Quota combinations.

Sales volume quotas includes ` or

product unit objectives for a

specific period of time.

• Individual established and new products.

• Geographic areas based on how the sales

organization is designed, which would

include:

• Sales division.

• Sales regions.

• Sales districts.

• Individual sales territories.

• Product lines.

• Gross margin quota determined by

subtracting cost of goods sold from sales

volume.

• Net profit quota determined by subtracting

cost of goods sold and salespeople’s direct

selling expense from sales volume.

The two types of profit quotas:

Expense quotas are aimed at controlling

costs of sales units. Often expenses are

related to sales volume or to the

compensation plan.

Activity quotas set objectives for job-

related duties useful toward reaching

salespeople’s performance targets.

Customer satisfaction refers to feelings

about any differences between what is

expected and actual experiences with the

purchase.

METHODS FOR SETTING SALES QUOTAS

• Quotas based on forecasts and potentials.

• Quotas based on forecasts only.

• Quotas based on past experience.

• Quotas based on executive judgments.

• Quotas salespeople set.

• Quotas related to compensation.

TABLE: LEVELS OF ORGANIZATIONAL SALES PLANNING

LEVEL PURPOSE: WHAT IS

PLANNED

WHO (USUALLY) IS

INVOLVED

1. Marketing •Organizational goals (increase in

market share or penetration,

increase in customers, increase in

sales dollars and units sold)

Upper management and sales and

marketing executives

2. Regional plan •Priorities (which regions, markets,

and products to emphasize)

Regional and district sales managers

(which input from sales reps)

3. District plan •Dollar allotment (for promotion,

advertising, new employees, sales

incentives, and so on)

District managers and sales

representatives

4. Territorial plan •Goals for number of new

customers and for increased

business with old customers in each

region and territory

Sales representatives

AGOOD OBJECTIVE AND QUOTA PLAN IS

SMART

Specific

Measurable

Attainable

Realistic

Time specific

SDM-Ch.6 2

Learning Objectives

• To understand sales training process

• To learn importance, theories, and tools of motivation

• To know objectives and designing of sales compensation plan

• To understand views, styles, and skills of sales leadership

• To know the methods used to supervise salespeople

Unit 2

SDM-Ch.6 3

Sales Training

• Proper training can prepare salespeople to meet with customer expectations

• New salespeople spend a few weeks to several months in training

• Companies view sales training important for protecting their investments in their salesforce

• Sales Training Process consists of:• Assessing sales training needs• Designing and executing sales training

programs• Evaluating and reinforcing sales training

programs

SDM-Ch.6 4

Assessing Sales Training needs

• Sales training needs are assessed both for• Newly hired sales trainees, and• Experienced / existing salespeople

• Methods used for assessing training needs are:• First level sales managers’ observation• Survey of salesforce and field sales managers• Customer survey• Performance testing of salespersons• Job description statements• Salesforce audit (as a part of marketing audit)

SDM-Ch.6 5

Designing and Executing Sales Training Programme

• For this, sales manager takes five decisions, called:

ACMEE: Aim, Content, Methods, Execution, Evaluation

• First three words and organisational decisions relate to designing of sales training

• Examples of Aims / Objectives of sales training:

• Increase sales, profits, or both

• Increase sales productivity• Improve customer relations• Prepare new salespeople for assignment to

territories

SDM-Ch.6 6

Content of Training Programme

• Content for new sales trainees is broader. It includes:

• Company knowledge

• Product knowledge• Customer knowledge• Competitor knowledge• Selling skills / sales techniques

• Examples of specific content for experienced salespersons are:

• New product knowledge• Introduce change in sales organisation• Negotiating skills

• Content depends on the aims of training programme

SDM-Ch.6 7

Sales Training Methods

• Selection of suitable methods for a training programme depends upon the topic and audience

• Training methods are grouped into five categories:

• Class room / Conference training

• Behavioural learning / Simulations

• Online training

• Absorption training

• On-the-job training

• We shall briefly review the training methods

SDM-Ch.6 8

Class-Room / Conference Training Group

• The training methods in this group are: (1) lecture, (2) demonstration, and (3) group discussion

• Lecture

• Used when more information is presented in a short time to a large number of participants

• May lead to boredom due to less active participation

• Demonstration• Used for giving product knowledge

• Group discussion• Useful when participants include experienced and

inexperienced salespersons

• A panel discussion consists of a small group of people who discuss a specific topic

SDM-Ch.6 9

Behavioural Learning / Simulation Group

• This group consists of three training methods: (1) role playing, (2) case-studies, and (3) business games

• Role playing• Useful method for teaching sales technique / process• Typically, one trainee plays the role of a salesperson and

another trainee acts as a buyer• Case studies

• Beneficial for understanding consumer behaviour, and building problem solving abilities

• Case teaching includes open discussion, group discussion and presentation

• Business games• Helpful in learning impact of decision making• Generates enthusiasm and competitive spirit

SDM-Ch.6 10

Online Training Group

• It includes (1) electronic performance support systems (EPSS), (2) interactive multimedia training, (3) distance learning

• It takes 50 percent less time and costs 30-60 percent less, and more convenient than other training methods

• Useful for getting basic knowledge like products and customers

• Electronic performance support system (EPSS) makes information available immediately, in a personalised manner

• Interactive media training is used for retraining salespeople who can repeat or skip material as desired

• Distance learning is a personal training method, which is interactive

SDM-Ch.6 11

Absorption Training / Self Study Group

• It includes supplying audio cassettes, product manuals, books, articles, and CD-ROMs to salespeople, who read (or absorb) these materials without feedback

• Useful for introducing basic materials or strengthening previous training

On-the-Job Training Group• Most companies use this method as it places a sales trainee

in a realistic sales situation

• Typically, a junior salesperson is assigned to a senior salesperson for some period of time

• In mentoring, a junior / new employee gets information, advise and support from mentors / experienced persons

• Job rotation is used to groom salespeople for management positions

SDM-Ch.6 12

Selecting Training Method

• In addition to the topic and audience, selection of appropriate method depends on active / passive learning

• People generally remember• 10% of what they read

• 20% of what they hear• 30% of what they see• 50% of what they hear and see• 70% of what they say, and• 90% of what they say as they do a thing

SDM-Ch.6 13

Organisational Decisions for Sales Training

• Organisational decisions, which are parts of designing sale training programme, are:

• Who will be the trainees?

• Who will conduct the training?

• When should the training take place?

• How long should the training be?

• Where should the training be done?

• What will be the budgeted expenditure for the training?

SDM-Ch.6 14

Execution of Sales Training Programme

• Usually sales trainer or sales training manager is responsible for entire process of sales training

• Execution / implementation includes preparing time-table, arranging internal / external trainers, making travel arrangements of participants, arranging conference hall and teaching aids, and so on

• A good practice to make a final check one / two days prior to start of training programme

• Obtain feedback from the sales trainees at the end of the programme

SDM-Ch.6 15

Evaluation of Sales Training Programme

• It is done to improve training design and implementation, and to find if expenditure was worthwhile

Framework for sales training evaluation:

Outcomes to measure What to measure How to measure When to measure

• Reactions / Perceptions of participants

• Training objective• Was training worthwhile?

• Questionnaires•interviews

• After the training

• Learning – knowledge, skills, attitudes learnt

• Knowledge, skills, attitudes

• Tests• Interviews

• After training• Before & after – training

• Behavioural change • Trainees’ change of behaviour

• Self-assessment by trainees• Observation by supervisors / customers

• After training, over a period of one year

• Results – Performance; Benefits more than cost?

• Sales, Profits• Customer satisfaction

• Company data• Management judgement• Market survey

• After training, Quarterly, Yearly

SDM-Ch.6 16

Reinforce Sales Training

• Behaviour of most salespeople would not change unless there is reinforcement to sales training

• In many companies reinforcement or follow-up trainings are not done

• Training methods used for reinforcement are:• Refresher training consists of continuous training to

overcome deficiencies of experienced salespeople and retraining of salespeople whose job requirements have changed

• Web-based or online methods to reinforce formal training sessions

• Senior salespeople or first line sales managers coaching new salespersons

SDM-Ch.6 17

Motivating the Salesforce

• Motivation is derived from Latin word “movere”, which means “to move”

• Motivation is the effort the salesperson makes to complete various activities of the sales job

• 10-15 percent salespeople are self-motivated• Majority of salespeople are not adequately

motivated• Importance of motivating salespeople is

recognised, because financial performance of the company depends upon the achievement of sales volume objective

SDM-Ch.6 18

Motivational Theories

• Motivational theories or behavioural concepts that are

relevant to motivation of salespeople are:

• Maslow’s hierarchy of needs

• Hertzberg’s dual-factor

• Vroom’s expectancy

• Churchill, Ford, and Walker model of salesforce

motivation, shown hereunder:

Motivation Effort Performance Reward Satisfaction

SDM-Ch.6 19

Selecting a Mix of Motivational Tools

• Sales manager should know each salesperson

and understand his / her specific needs

• For designing or selecting a mix of motivational

tools, a compromise between differing needs of

customers, salespeople, and the company

management becomes necessary

• Motivational tools are divided into (1) financial,

and (2) non-financial. These are shown in the

next slide

SDM-Ch.6 20

Motivational Tools in a Motivational Mix

• Financial compensation is the most widely used tool of motivation, as salespeople give highest value to it

Financial Non Financial

• Financial compensation plan• Salary• Commission/Incentive• Bonus• Fringe benefits• Combination

• Sales contests

• Promotion• Sense of accomplishment• Personal growth opportunities• Recognition• Job security• Sales meetings• Sales training programmes• Job enrichment• Supervision

SDM-Ch.6 21

Compensating the Salesforce

• A good compensation plan should consider objectives

from the company’s and salespeople’s viewpoint

• Objectives of compensation plan from the company’s

viewpoint

• To attract, retain, and motivate competent salespeople

• To control salespeople’s activities

• To be competitive, yet economical: It is difficult to

balance these two objectives

• To be flexible to adapt to new products, changing

markets, and differing territory sales potentials

SDM-Ch.6 22

Objectives of Compensation Plan from Salesperson’s Viewpoint

• To have both regular and incentive income

• Regular income by fixed salary to take care of living

expenses

• Incentive income for above average performance

• To have a simple plan, for easy understanding

• This is in conflict with the objective of flexibility

• To have a fair payment plan

• Fair or just payment to all salespeople is ensured by

selecting measurable and controllable factors

SDM-Ch.6 23

Designing an Effective Sales Compensation Plan

• Designing a new compensation plan or revising an

existing plan consists of the following steps:

• Examine job descriptions

• Set up specific objectives for salespeople

• Decide levels of pay / compensation

• Develop the compensation mix

• Decide indirect payment plan or fringe benefits

• Pretest, administer, and evaluate the plan

• We shall examine these steps briefly

SDM-Ch.6 24

Examine Job Descriptions

• Separate job descriptions are required for different sales positions or jobs – E.G. missionary salesperson, senior salesperson, key account executive

• Each job description should include responsibilities and key performance standards, to decide how much to pay

Set up Specific Objectives for Salespeople

• These are derived from company’s sales and marketing objectives

• Salespeople should have some control on the objectives – E.G. number of sales calls made

• Objectives should be measurable. E.G. sales volume, selling expenses

SDM-Ch.6 25

Decide Levels of Pay / Compensation

• It means the average pay or money earned per year (or month)

• It is important to decide levels of pay for all sales positions

• It is decided based on the following factors:

• Levels of pay for similar positions in the industry

• Levels of pay for comparable jobs in the company

• Education, experience, and skills required to do sales job

• Cost of living in different metros and cities

• Annual average pay levels vary between industries, within the same industry, and sometimes within the company

• Firms decide a range of average pay, instead of a specific pay

• Salespeople earn pay depending on their and company performance

SDM-Ch.6 26

Develop the Compensation Mix

• Widely used elements of compensation mix are: (1) salaries, (2) commissions, (3) bonuses, (4) fringe benefits (or perquisites)

• Expense allowances or reimbursements like travel, lodging, etc are not included

• Basic types of compensation plans are:

• Straight salary• Straight commission• Combination of salary, commission, and / or bonus

• 68 percent companies use combination plan and balance 32 percent firms use straight salary or straight commission

• We shall briefly examine above compensation plans

SDM-Ch.6 27

Straight – Salary Plan• Characteristics:

• 100 percent compensation is salary, which is a fixed component

• No concern for sales performance or salesperson’s efforts

• This plan is suitable for sales trainees, missionary salespeople, and when a company wants to introduce a new product or enter a new territory

• Advantages:

• Salespeople get secured income to cover living expenses

• Salespeople willing to perform non-selling activities like payment collection, report writing

• Simple to administer

• Disadvantages:

• No financial incentive to salespeople for more efforts and better performance. Hence, superior performance may not be achieved

• May be a burden for new and loss-making firms

SDM-Ch.6 28

Straight – Commission (or Commission Only) Plan

• Characteristics:

• It is opposite of straight-salary plan

• Most popular commission base is sales volume or profitability

• Commission rate is a percentage of sales or gross profit

• This plan is generally used by real estate, insurance, and direct-sales (or network marketing) industries

• Advantages:

• Strong financial incentive attracts high performance, removes ineffective salespeople and improves results

• Controls selling costs and requires less supervision

• Disadvantages:

• Focus is on sales and not on customer relationship

• Salespeople may pay less attention to non-selling activities

SDM-Ch.6 29

Combination Plan

• Characteristics:

• Combines straight salary & straight commission plan

• Four types of combination plans used by companies:

1) Salary plus commission: suitable for getting improved sales and customer service

2) Salary plus bonus: a bonus is a lumpsum, single payment, for achieving short-term objectives. This plan is used for rewarding team performance

3) Salary plus commission plus bonus: suitable for increasing sales, controlling salesforce activities, and achieving short-term goals. Also suitable for selling seasonal products like fans

4) Commission plus bonus: Not popular. Used for team selling activities for selling to major customers

SDM-Ch.6 30

Combination Plan (Continued)

• Advantages:

• Flexible to reward and control salesforce activities

• Security for living costs and incentives for superior performance for salespeople

• Rewards specific sales performance

• Different plans for different sales positions / jobs

• Disadvantages:

• Complex and difficult to administer

• May not achieve objectives if not properly planned, implemented and understood

• Indirect payment plan, also called fringe benefits or perquisites, help in attracting and retaining people, but have now come under government tax in India

SDM-Ch.6 31

Pretest, Administer, and Evaluate Compensation Plan

• Pretesting the new / proposed Compensation Plan:

• Companies pretest a new (or proposed) plan, before adoption

• Either it is simulated on a computer, or pretested at one / more branches for 6-12 months

• It should involve all concerned people

• Administering the new compensation plan

• Announce the plan in advance

• Explain the new plan and reasons for changing the previous plan

• Outsource administration if plans are changed frequently

• Evaluating the new compensation plan

• Find if objectives of the plan are achieved

• Some companies audit compensation plans

SDM-Ch.6 32

Leading the Salesforce

• Leadership is the ability to influence people to achievement of objectives

• Leadership is necessary for a sales manager’s effectiveness

Leadership Styles

• Transactional leadership equates to supervision – relating to day-to-day operations & control, and task-orientation

• Transformational leadership changes values and attitudes of followers, who perform beyond expectations

• Situational leadership uses a style that fits the situation

Leadership skills

• Leadership skills required by an effective sales manager are: communication, problem-solving, and interpersonal

SDM-Ch.6 33

Supervising Salespeople

• Supervising is directing and controlling day-to-day activities of salespeople

• It is a part of leadership

• Sales managers use a combination of methods to supervise salespeople

• Methods of supervision are classified into two categories – direct and indirect

Direct Supervisory Methods Indirect Supervisory Methods

• Telecommunications• Sales meetings• Personal contacts• Coaching / Mentoring

• Sales reports• Compensation plan• Sales analysis• Expense accounts

SDM-Ch.6 34

Key Learnings

• Sales training process consists of need assessment, designing, executing, evaluating, and reinforcing

• Methods used for need assessment include observation, survey, performance testing, job description, and audit of salesforce

• Designing sales training programme require five decisions, called “ACMEE”: Aims, Content, Methods, Execution, Evaluation

• Execution of training programme includes preparing time-table, arranging trainers, travel booking, conference hall, teaching aids, etc.

• Evaluation of training is done to improve design & implementation, and find if expenditure was worthwhile

• Methods used for reinforcement include refresher training, web-based, and coaching salespeople

SDM-Ch.6 35

Key Learnings (Continued)

• Motivation is the effort salesperson makes to perform various activities of sales job

• Out of the various financial and non-financial tools of motivation, financial compensation is most widely used

• 68 percent companies use combination compensation plan, and 32 percent use straight salary / commission plans

• Leadership is necessary for a sales manager’s effectiveness

• Leadership styles are transactional, transformational, and situational

• Leadership skills include communication, problem-solving, and interpersonal

• Supervising, a part of leadership, is directing & controlling day-to-day activities of salespeople

Structures of sales organization

Structure?

Basic Types of Sales Organisations

Sales organisations are generally classified into four basic types:

• Line Organisation• Line and staff organisation• Functional organisation• Horizontal organisation

We shall discuss main characteristics, advantages, and disadvantages of each type of sales organisation

Line Organization

HeadMarketing

Sales Manager

Area Sales Manager1

Area Sales Manager3

Area Sales Manager2

Area Sales Manager4

salespeople salespeople salespeople salespeople

Characteristics: All managers have line authority to direct and control subordinates. Used in small firms / departments

Advantages: Simple organization, clear authority, quick decisions, low cost

Disadvantages: No support to line managers from subordinates who have specialized knowledge / skills. Less time for planning / analysis

Line and Staff Organization

Head-Marketing

Marketing ResearchManager

Sales ManagerPromotional

ManagerCustomer Service

Manager

Area Sales Manager-1



Salespeople Salespeople Salespeople

Characteristics: Specialist staff managers are available for senior marketing / sales managers. Staff managers’ role is to assist / advise line managers. Used in medium and large size organizations

Advantages: Better marketing decisions, superior sales performance

Disadvantages: High cost and coordination, slower decision making, conflict may arise if staff managers’ role is not clear

Functional Organization

Head-Marketing

Marketing Research Manager

Promotional Manager

Customer ServiceManagerSales Manager

Area Sales Manager #4

Salespeople

Characteristics: Each functional specialist has line responsibility over salespeople. Used by a large firm with many products / market segments, minimizing line authority to functional managers

Advantages: Qualified specialists guide sales force, simple to administer

Disadvantage: confusion due to more managers giving orders to sales force

Horizontal Organization

Research & Design Team:•Customer Research•Product / Service Design

Planning Team:•Strategic Planning•Accounts, Finance•HR, Administration•Chief Operation Officer

Operations Team:•Production / Operations•Quality Assurance•Systems Engineering

Customer Support Team:•Information•Service•Training

Customer Satisfaction Team:•Sales & Marketing•Pricing, Promotion•Channels, Logistics

Characteristics: Removes management levels & departmental boundaries. Except planning team, all others are members of cross-functional teams. Used by firms having partnering relationships with customers.

Advantages: Reduction in supervision, unnecessary tasks, & cost; Improved efficiency and customer responses.

Specialization within Sales Organization

• Needed to increase effectiveness of sales force• Done by expanding basic sales organization• Basis of specialization

• Geography• Type of product• Market • Combination of above

• Criteria for selection – (1) nature of product, (2) sales force abilities, (3) demands of selling job, (4) customer and market facts

Geographic Specialization

Head-Marketing


General SalesManager Promotion

Manager

Customer ServiceManager

Branch SalesManager-1




Salespeople Salespeople Salespeople Salespeople

Characteristics: salespeople, assigned geographic areas, are responsible for all selling activities to all customers within assigned areas. Branch sales managers adjust marketing plan to local needs

Advantages: Better market coverage and customer service, more control over sales force, quick response to local conditions & competition

Disadvantages: Limited specialization of marketing tasks. Hence, it is combined with product / market sales organization

Product Specialization

Head-Marketing


GeneralSales Manager

Sales TrainingManager

PromotionManager

Area Sales Managers –Product Group ‘A’

Area Sales Managers –Product Group ‘B’

Salespeople – Product Gr. ‘A’

Salespeople – Product Gr. ‘B’

Fig. ‘x’ Sales Organisation with product specialised salesforce

Advantage: Each product gets specialized attention from the salesforce

Disadvantage: Sometimes, more salespeople contact the same customer, resulting in customer dissatisfaction and higher cost

Market Specialization

General SalesManager

Sales Manager-International-

Markets

Sales Manager-Commercial

Sales Manager-Consumer Markets

Sales Manager-Government

Area Sales MgrsInternational

Sales Executives

Area Sales Manager-Commercial

Salespeople

Area Sales Manager-Government

Salespeople

Area Sales Mgrs-Consumer Markets

Salespeople

• Characteristics: Desirable when customers are classified by type, user

industry, or channel. Salespeople carry out all activities for all products only

for specific customer groups

• Advantages: Meets needs of specific customer groups, implements

customer-centerd philosophy of the company

• Disadvantages: Geographic duplication, high cost

Combination Sales Organization

Director – Sales & Marketing

General ManagerSales - North

General ManagerSales - East

General ManagerSales - South

General ManagerSales - West

Regional SalesMgr. – Govt.

Regional SalesMgr. - Dealers

Regional SalesMgr. - Commercial

Salespeople Salespeople Salespeople

• Characteristics: Many firms use some combination of specialisation organizations, called hybrid or combination sales organisation, with a view to minimize disadvantages and maximize advantages of specialization organizations

Thanks for listening patiently

An effort by: Vivek Gautam

SALES FORCE PERFORMANCESALES FORCE PERFORMANCE

• The division of a business that's responsible for selling products or services. In this case, you may expect your sales force to handle only the larger accounts, leaving the smaller orders to customer service personnel and order-takers.

• A judgment or assessment of the value of something, especially a formal one. A performance appraisal evaluates how well the salesperson met their prior stated objectives.

DETERMINANTS OF SALES FORCE DETERMINANTS OF SALES FORCE PERFORMANCEPERFORMANCE

• Changing dynamics of the market have increased the Changing dynamics of the market have increased the

pressure on sales forcepressure on sales force

• Many studies were conducted to know the factors which Many studies were conducted to know the factors which

will influence sales force performancewill influence sales force performance

• They are They are

1.1. Internal factorsInternal factors

2.2. External factorsExternal factors

INTERNAL FACTORSINTERNAL FACTORS

• MotivationMotivation

• Skill levelSkill level

• Job satisfactionJob satisfaction

• Role perceptionRole perception

• Ego driveEgo drive

• Empathy Empathy

EXTERNAL FACTORSEXTERNAL FACTORS

a)a) Environmental factorsEnvironmental factors

b)b) Organizational factors Organizational factors a)a) communication & work flowcommunication & work flowb)b) compensation system compensation system

c)c) Sales management functions Sales management functions a)a) Sales force planningSales force planningb)b) ForecastingForecastingc)c) Territory managementTerritory managementd)d) CompensationCompensatione)e) ControlControl

PERFORMANCE EVALUATIONPERFORMANCE EVALUATION

• The process of assessing an employee's job performance and productivity.

• Important process which enhances the way organization is Important process which enhances the way organization is

managed & provides recommendations for further managed & provides recommendations for further

improvement.improvement.

SALES FORCE EVALUATION SALES FORCE EVALUATION PROCESSPROCESS

Determine the factors that influence sales force performance

Select criteria for sales force evaluation

Establish performance standards

Compare sales force performance

Performance review & feed back

Evaluation process

MAJOR SOURCES OF INFORMATIONMAJOR SOURCES OF INFORMATION

• Company recordsCompany records• Sales volumes, sales order to call ratio, profitability, selling expenses etc.Sales volumes, sales order to call ratio, profitability, selling expenses etc.

• Reports from sales personsReports from sales persons• Activity, expenses, call reportsActivity, expenses, call reports

• CustomersCustomers• Inadequacy of sales persons reports can be removedInadequacy of sales persons reports can be removed

• Manager’s field visitManager’s field visit• Communication skills, interpersonal skills, technical product knowledge, Communication skills, interpersonal skills, technical product knowledge,

personality traitspersonality traits

• Other sourcesOther sources• Distributors, personal contacts, published & electronic sources etc.Distributors, personal contacts, published & electronic sources etc.

• Information from peers & subordinates (360Information from peers & subordinates (3600 0 feed back)feed back)

ESTABLISHING OF PERFORMANCE ESTABLISHING OF PERFORMANCE STANDARDSSTANDARDS

• Based on the criteria standards are to be formulated.Based on the criteria standards are to be formulated.

• Standards act as a bench mark & helps in evaluating performance.Standards act as a bench mark & helps in evaluating performance.

• Can be prepared by a sales manager singly or in consultation with Can be prepared by a sales manager singly or in consultation with other sales personnel.other sales personnel.

• No. of standards to be used is one of major decisions & difficulty No. of standards to be used is one of major decisions & difficulty involved in the weight to be given to each factor.involved in the weight to be given to each factor.

• Large companies will have common set of performance standards.Large companies will have common set of performance standards.

• Relationship between input & output measures to be kept in mind Relationship between input & output measures to be kept in mind while setting standards.while setting standards.

SOME OF THE METHODS FOR SOME OF THE METHODS FOR EVALUATIONEVALUATION

1. Essays: where sales manager describes the performance of sales person in few paragraphs.

2. Rating scales: based on standardized performance measures.

3. Forced choice method: where the sales manager is asked to go through groups of statements & select those that best explain the individual.

4. Ranking: useful when entire sales force has to be evaluated. Techniques used are alternative ranking, paired comparison ranking & multiple ranking.

SALES CONTROLSALES CONTROL

Sales control is one of the functions of sales management which Sales control is one of the functions of sales management which

ensures the sales achievement and profit objectives of the ensures the sales achievement and profit objectives of the

company by coordinating effectively and efficiently the company by coordinating effectively and efficiently the

different sales functions.different sales functions.

Goals of Sales controlGoals of Sales control

• • Optimize number of salesOptimize number of sales

• • Maximize profitMaximize profit

• • Control revenueControl revenue

• Sales budget and sales programmes are the basic available tools Sales budget and sales programmes are the basic available tools

to control the efforts. to control the efforts.

• Other available tools areOther available tools are

• • Sales AuditSales Audit

• • Sales AnalysisSales Analysis

• The above tools can be used in identifying the strength and The above tools can be used in identifying the strength and

weakness of the internal processes and opportunities and threats weakness of the internal processes and opportunities and threats

from the external environment. Further it will help the from the external environment. Further it will help the

management in locating the defect in the functioning of the sales management in locating the defect in the functioning of the sales

department and take corrective measures.department and take corrective measures.

SALES BUDGET

Sales AuditSales Audit

Sales audit is the systematic and unbiased review of the basic Sales audit is the systematic and unbiased review of the basic objective and policy of the selling function of an organization. Sales objective and policy of the selling function of an organization. Sales audits help in improving the effectiveness of the sales arm of the audits help in improving the effectiveness of the sales arm of the organization. organization.

Audits normally examine six aspects such asAudits normally examine six aspects such as

• • Objective of the companyObjective of the company

• • Internal policiesInternal policies

• • Structure of the organizationStructure of the organization

• • Sales methodsSales methods

• • ProceduresProcedures

• • Sales personnelSales personnel

Sales Analysis :Sales Analysis :

Sales analysis is the study of sales volume operations to find the Sales analysis is the study of sales volume operations to find the sales and profit trend. It helps in achieving better sales performance. sales and profit trend. It helps in achieving better sales performance. It also provides insights on the sales territories, type of customers and It also provides insights on the sales territories, type of customers and products.products.

Marketing Cost Analysis:Marketing Cost Analysis:

Marketing cost analysis is a strategy applied in marketing where Marketing cost analysis is a strategy applied in marketing where the costs connected with selling, storing, advertising and distributing the costs connected with selling, storing, advertising and distributing of products to particular buyers, are analysed in order to determine of products to particular buyers, are analysed in order to determine their profitability. Distribution.their profitability. Distribution.

THANK YOU THANK YOU

• Retail is the end or final stage of any economic activity. The word“retail” comes from the old French word “retaillier”, which means tocut off or to break bulk.

• Retailer may be defined as a dealer or trader who sells goods/services in small quantities to consumers for personal or family use.

• According to Philip Kotler “Retailing includes all the activities involvedin selling goods or services directly to final consumers for personal,non business use”.

• Retailer or retail store is any business enterprise whose sale volumecomes primarily from retailing.

• Retailing is a set of business activities that adds value to the productsand services sold to consumers for their personal or family use.

• Retailing may be understood as the final step in distribution ofmerchandise, for consumption by the end consumers.

Type your text

• Any organization selling to final consumer is retailing , whether they are:

A Manufacturer

A Wholesaler

A Retailer

• It does not matter how they sell or serve by -

Person

Mail

Telephone

Vending Machine or

Internet

Or

• Where these are sold - A store, street or Consumer’s House

• Retail Management is a process of promoting greater sales and customersatisfaction by gaining a better understanding of the consumers of goodsand services produced by a company.

• It includes all the steps required to bring the customers into the store andfulfill their buying needs

• It is an art as it requires a number of management tools for a complete enduser satisfaction.

Role of Retailer in a Supply Chain

• Retailers are a key component in a supply chain that links manufacturers toconsumers by delivering the goods and services.

• Manufacturers design and make products and sell them to retailers orwholesalers.

• Wholesalers engage in buying, storing, and physically handling goods inlarge quantities and then reselling the goods (usually in smaller quantities)to retailers or other businesses.

• Generally wholesalers focus on satisfying retailers’ needs, while retailersdirect their efforts to satisfying the needs of consumers.

A Typical Supply Chain

Manufacturer Wholesaler Retailer Consumer

Role of Retailer in a Supply Chain

The value creating activities of Retailer are:

1. Providing an Assortment of Products and Services – Big retailers carry largenumber of items made by several companies. Offering an assortment enablesthe customers to choose from the wide selection of brands, designs, sizes,colours etc. at one location.

2. Breaking Bulk - Retailers offer products in smaller quantities tailored toindividual consumers’ and households’ consumption patterns.

3. Holding Inventory – Retailers keep inventory, broken into user – friendly sizesso that products will be available when consumers want them.

4. Providing Services – Retailers provide services that make it easier forcustomers to buy and use products.

5. Increasing the Value of Products and Services - Thus by providing assortments,breaking bulk, holding inventory and providing services, retailers increase thevalue that consumers receive from their products and services.

Scope of Retailing

1. Merchandising: Merchandising and buying is the key function of anyretailer as this department is responsible for the procurement ofmerchandise to be sold in the stores by sourcing it from vendors ormanufacturers

2. Marketing: In retail marketing, functions may be centralized and mayinclude different departments like advertising, sales promotion, publicrelations etc.

3. Store Operations: Retail professionals in the store operations area have tomonitor the overall store operations and profits. They may occupy positionsincluding Head of Store Operations, Regional Manager and District Manager.

4. Sales: Areas in sales include responsibilities of a sales associate,cashier, store stock associate and stock receiver.

5. Human Resource Management: Human Resource in retail may range fromrecruiting and hiring employees to broader areas like training and motivatingemployees.

6. Accounting and Finance: This includes accounting for income, payingexpenses, compiling and maintaining financial records, money managementand cash flow control, banking, credit policies etc.

7. Technology and E-commerce: Retail business incorporates major use ofinformation technology

8. Supply of Information: The retailer informs and educates customers aboutproduct features and benefits

9. Visual Merchandising: Visual merchandising is associated with creating theoverall look of the store

10. Supply Chain Management and Logistics: Supply chain management andlogistics are fast emerging as key focus in retail.

Economic and Social Significance of Retailing

1. Social Responsibility

(E.g.: A retailer might reduce the energy consumption of his store, use paperbags)

2. Retail Sales

3. Employment

4. Supply of Information

5. Economic Development

6. Creation of Utilities

• Form Utility

• Time Utility

• Place Utility

• Ownership/ Possession Utility

Economic and Social Significance of Retailing

7. Creates Value

• Providing an assortment of products and services

• Breaking Bulk

• Holding Inventory

• Providing Services

Global Retailers

• Retailing is a global industry. Many retailers are pursuing growth byexpanding their operations to other countries.

• Globally, Walmart remains the undisputed leader in the retail industry, withsales that are more than three times greater than those of Carrefour, thesecond - largest retailer.

• In the Global scenario, it is seen that retailers that focus on hard lines such asconsumer electronics, appliances, and furniture experience better financialperformance than FMCG and apparel retailers.

• The nature of retailing and distribution channels around the world differs.

Global Retailers

• Retailing is a global industry.

• Many retailers are pursuing growth

by expanding their operations to

other countries.

• List of 20 largest retailers in the

world. Walmart remains the

undisputed leader in the retail

industry, with sales that are more

than three times greater than

those of Carrefour, the second -

largest retailer.

The Indian Retail scape

• The retail industry in India is mainly divided into:-

1) Organised and

2) Unorganised Retailing

• Organised retailing refers to trading activities undertaken by licensedretailers, that is, those who are registered for sales tax, income tax, etc.These include the corporate-backed hypermarkets and retail chains, andalso the privately-owned large retail businesses.

• Modern trade can be defined as any organised form of retail or wholesaleactivity (both food and non-food, under multiple formats), which is typicallya multi-outlet chain of stores or distribution centres run by professionalmanagement.

Organized and Unorganized Retail

• Unorganised retailing, on the other hand, refers to the traditional formats of low-cost retailing, owner manned general stores etc., E.g. the local kirana shops,paan/beedi shops, convenience stores, hand cart and pavement vendors.

• According to the National Accounts Statistics of India, the 'unorganised sector'includes units whose activity is not regulated by any statute or legal provision,and/or those, which do not maintain regular accounts. In the case ofmanufacturing, this covers all manufacturing units using power and employingless than 10 workers or not using power and employing less than 20 workers.

• The Indian retail sector is highly fragmented with large majority of its businessbeing run by the unorganized retailers.

• The Indian distribution systems are characterized by small stores operated byrelatively small firms and a large independent wholesale industry.

• Retail has become the largest source of employment and has deep penetrationinto rural India.

Classification of Retailers

The most basic characteristics used to describe the different types of retailersis their retail mix.

1. Type of Merchandise/ Service Sold

2. Variety and Assortment of Merchandise Sold

Variety (breadth of merchandise) : number of merchandise categories aretailer offers

Assortment (depth of merchandise) : number of different items in amerchandise category

Stock Keeping Unit (SKU) : Each different item of merchandise

3. Services Offered

4. Price of Merchandise

Classification of Retailers

Retailers can be classified under three broad heads:

A. Food Retailers

B. General Merchandise Retailers

C. Service Retailers

A. Food Retailers

1. Supermarkets

• Self - service food store offering groceries, meat products, non food itemssuch as health and beauty aids and general merchandise.

• Perishables including meat, baked goods, and dairy products account for44% of supermarket sales, having higher margins than packaged goods.

• Conventional supermarkets carry about 30,000 SKUs, limited assortmentsupermarkets, or extreme-value food retailers, only stock about 2,000SKU’s.

• Limited-assortment supermarkets offer one or two brands and sizes, one ofwhich is usually a store brand.

• Supermarket has a selling area of between 400 sq. m. and 2,500 sq. m,selling at least 70% of its merchandise comprising of foodstuffs andeveryday commodities.

A. Food Retailers

• Although conventional supermarkets still sell a majority of foodmerchandise, they are under substantial competitive pressure, especiallyfrom Supercenters and Warehouse Clubs as they offer broader assortmentsof food and general merchandise at attractive prices.

• To compete effectively, conventional supermarkets are differentiating theirofferings by:

Emphasizing fresh perishables - Fresh-merchandise categories are theareas around the outer walls of a supermarket, known as the “powerperimeter,” that include the dairy, bakery, meat, florist, produce, deli, andcoffee bar. These departments attract consumers and are very profitable.Fresh supermarkets are smaller (30,000 versus 40,000 square feet) andmore convenient than traditional supermarkets and have less space devotedto packaged goods.

A. Food Retailers

Targeting health-conscious and ethnic consumers – Conventionalsupermarkets are offering more natural, organic, and fair-trade foods forthe growing segment of consumers who are health-conscious andenvironmentally conscious.

Providing better value with private-label merchandise – Conventionalsupermarket chains have started offering more private-label merchandisethat benefits the retailers as well as customers.

Providing a better shopping experience - Creating an enjoyable shoppingexperience through better store ambience and customer service is anotherapproach that supermarket chains use to differentiate themselves from low-cost, low-price competitors.

A. Food Retailers

2. Supercenters

• Supercenters are large stores (185,000 square feet) that combine asupermarket with a full-line discount store.

• By offering broad assortments of grocery and general merchandise productsunder one roof, supercenters provide a one-stop shopping experience.

• General merchandise (non-food) items are often purchased on impulsewhen customers’ primary reason for coming to the supercenter is to buygroceries.

• General merchandise has higher margins, enabling the supercenters to pricefood items more aggressively.

• However, supercenters are very large, so some customers find theminconvenient because it can take a long time to find the items they want.

A. Food Retailers

Hypermarkets are large (100,000 to 300,000 square feet), combination food(60 to 70 percent) and general merchandise (30 to 40 percent) stores.

• The world’s second-largest retailer, Carrefour, operates hypermarkets.

• Hypermarkets stock fewer SKUs than the supercenters - between 40,000and 60,000 items, ranging from groceries, hardware, and sports equipmentto furniture and appliances to computers and electronics.

• Hypermarkets and supercenters are similar. They are both large, carrygrocery and general merchandise categories, offer self-service, and arelocated in warehouse-type structures with large parking facilities.

• However, hypermarkets carry a larger proportion of food items than dosupercenters and have a greater emphasis on perishables.

• Supercenters have a larger percentage of non-food items and focus more ondry groceries, such as breakfast cereal and canned goods.

A. Food Retailers

3. Warehouse Clubs

• Warehouse Clubs are retailers that offer a limited and irregular assortmentof food and general merchandise with little service at low prices for ultimateconsumers and small businesses.

• The largest warehouse club chains in USA are Costco, Sam’s Club (Walmart)

• Customers are attracted to these stores because they can stock large packsof basics like paper towels, large-size packaged groceries, best-selling booksand CDs, fresh meat and produce, and an unpredictable assortment ofupscale merchandise and services at low prices.

• Warehouse clubs are large (100,000 to 150,000 square feet) and typicallylocated in low-rent districts. They have simple interiors and concrete floors.

• Warehouse clubs can offer low prices because they use low-cost locations,have inexpensive store designs and offer little customer service.

Cash and Carry (C&C)

• Cash and carry is a form of trade in which goods are sold from a wholesalewarehouse operated either on a self-service basis or on the basis of samples(with the customer selecting from specimen articles using a manual orcomputerized ordering system but not serving themselves) or acombination of the two.

• Customers (retailers, professional users, caterers, institutional buyers, etc.)are members who settle the invoice on the spot in cash and carry the goodsaway themselves.

• C & C wholesalers arrange the transport of goods themselves and pay forthe goods in cash, and not on credit.

• It offers wide assortment of goods, food and non-food items.

A. Food Retailers

4. Convenience Stores

• Provide a limited variety and assortment of merchandise at a convenientlocation in 3,000 to 5,000 square-foot stores with speedy checkout.

• These stores enable consumers to make purchases quickly, without havingto search through a large store and wait in a long checkout line.

• They offer only limited assortments and variety, and they charge higherprices than supermarkets.

• To increase convenience, these stores are opening smaller stores close towhere consumers shop and work.

• Easy access, storefront parking, and quick in-and-out access are some of thebenefits offered by convenience stores.


1. Department Stores

• Department stores are retailers that carry a broad variety and deepassortment, offer customer services, and organize their stores into distinctdepartments for displaying merchandise.

• Department stores attract customers by offering a pleasing ambience,attentive service, and a wide variety of merchandise under one roof. Theysell both soft goods (apparel and bedding) and hard goods (appliances,furniture, and consumer electronics).

• The major departments are women’s, men’s, and children’s apparel, homefurnishings, cosmetics, kitchenware, and small appliances.

• Each department within the store has a specific selling space allocated to it,as well as salespeople to assist customers. The department store oftenresembles a collection of specialty shops.


• Department stores chains can be categorized into three tiers:

The first tier includes upscale, high-fashion chains with exclusive designermerchandise and excellent customer service.

The second tier of traditional department stores, in which retailers sellmore modestly priced merchandise with less customer service.

The value-oriented third tier caters to more price-conscious consumers.

• Department stores are not as convenient as discount stores as they arelocated in large regional malls rather than local neighborhoods.

• Customer service has diminished in the second and third-tier stores becauseof the retailers’ desire to increase profits by reducing labor costs.

• Department stores, because of the large number of fashionable SKUs, havenot been as successful as discount stores and food retailers in reducing costsby working with their vendors to establish just-in-time inventory systems.


• To deal with their decreasing market share, department stores are:

attempting to increase the amount of exclusive merchandise they sell

undertaking marketing campaigns to develop strong images for their storesand brands

Expanding their online presence.

• Today the department stores are placing more emphasis on developingtheir own private-label brands, shifting their marketing activities frompromotional sales to brand-building activities, involving televisionadvertising and participating in multichannel retailing.


2. Full-Line Discount Stores

• These are retailers that offer a broad variety of merchandise (private labelsand national brands), limited service, and low prices. Discount stores offerboth.

• They face intense competition from category specialists that focus on asingle category of merchandise.

• Supercenters are more efficient because of the economies of scale thatresult from the high traffic generated by the food offering.


3. Specialty Stores

• These stores concentrate on a limited number of complementarymerchandise categories and provide a high level of service.

• They tailor their retail strategy toward very specific market segments byoffering deep but narrow assortments and sales associate expertise.

• E.g. Victoria’s Secret, leading specialty retailer of lingerie and beautyproducts in the United States, Levi’s (jeans and casual apparel), Apple(computers, phones), Coach (purses and leather accessories)

• Specialty stores may be located at several places such as malls, lifestylecenters etc.


4. Drugstores

• Specialty stores that concentrate on health and personal groomingmerchandise.

• Major drugstore chains are offering a wider assortment of merchandise,including more frequently purchased food items, the convenience of drive-through windows for picking up prescriptions, and in-store medical clinics.

• To build customer loyalty, the chains are changing the role of theirpharmacists from simply dispensing pills to providing health care assistance,such as explaining how to use a nebulizer.

• Drugstores are expanding their role as a fill-in trip destination by carryingproducts typically found in convenience stores, such as beverages, andmaking them easily accessible at the front of the store.


5. Category Specialists

• These are big-box stores that offer a narrow but deep assortment ofmerchandise, use a self-service approach, but offer assistance to customersin some areas of the stores.

• By offering a complete assortment in a category, category specialists can“kill” a category of merchandise for other retailers and thus are frequentlycalled category killers.

• Using their category dominance and buying power, they buy products at lowprices and are ensured of supply when items are scarce.

• Department stores and full-line discount stores located near categoryspecialists often have to reduce their offerings in the category becauseconsumers are drawn to the deep assortment and relatively low prices atthe category killer.


• Although category specialists compete with other types of retailers,competition between them is intense.

• They all provide similar assortments, because they have similar access tonational brands, and they all provide the same level of service. Thus theycompete on price and location and sometimes services offered.


6. Extreme-Value Retailers

• Small discount stores that offer a broad variety but shallow assortment ofhousehold goods, health and beauty aids, and groceries at very low prices.

• They primarily target low-income consumers, who want well-known brandsbut cannot afford to buy the large-size packages offered by full-line discountstores or warehouse clubs.

• E.g. Vendors such as Procter & Gamble often create special, smallerpackages for extreme-value retailers.

• Higher income consumers are increasingly patronizing these stores for funand an opportunity to find some hidden treasure among the householdstaples.


7. Off-Price Retailers (also known as closeout retailers)

• Offer an inconsistent assortment of brand-name merchandise at asignificant discount off the manufacturers’ suggested retail price (MSRP),reason being their unique buying and merchandising practices.

• Most merchandise is bought opportunistically from manufacturers thathave overruns, canceled orders, forecasting mistakes causing excessinventory, close-outs, and irregulars.

• Closeouts are end-of-season merchandise that will not be used in followingseasons.

• Irregulars are merchandise that has minor mistakes in construction.


• Off-price retailers can buy at low prices because they do not ask suppliersfor advertising allowances, return privileges or delayed payments.

• A special type of off-price retailer is the outlet store. Outlet stores are offprice retailers owned by manufacturers or retailers. Those owned bymanufacturers are also referred to as factory outlets.


• Services retailers, or firms that primarily sell services rather thanmerchandise, are a large and growing part of the retail industry.

• These companies are retailers because they sell goods and services toconsumers. However, some are not just retailers. For example, airlines,banks, hotels, and insurance and express mail companies sell their servicesto businesses as well as consumers. Also, many services retailers, such aslawyers and doctors focus on local markets and do not have a nationalpresence.

• Organizations such as banks, hospitals, health spas, entertainment firms,and universities that offer services to consumers traditionally have notconsidered themselves retailers. Yet due to increased competition, theseorganizations are adopting retailing principles to attract customers andsatisfy their needs.


• All retailers provide goods and services for their customers. However, theemphasis placed on the merchandise versus the service differs across retailformats.

Continuum of Merchandise and Services Retailers

Difference between Service and Merchandise Retailers

The important differences in the nature of the offerings provided by servicesand merchandise retailers are:

• Intangibility

• Simultaneous production and consumption

• Perishability

• Inconsistency of the offering to customers

Classification of Retailers by their Ownership

• We have seen how retailers may be classified in terms of their retail mix andthe merchandise and services they sell.

• Another way to classify retailers is by their ownership. The majorclassifications of retail ownership.

• They can be classified as

A. Independent, single-store establishments

B. Corporate chains

C. Franchises

A. Independent, Single-store Establishments

• Single-store retailers rely on their owner managers’ capabilities tomake the broad range of necessary retail decisions.

• To compete against corporate chains, some independent retailers joina wholesale sponsored voluntary cooperative group, which is anorganization operated by a wholesaler offering a merchandisingprogram to small, independent retailers on a voluntary basis.

B. Corporate Chains

• A retail chain is a company that operates multiple retail units undercommon ownership and usually has centralized decision making fordefining and implementing its strategy.

• Retail chains can range in size from a drugstore with two stores toretailers with thousands of stores, such as Walmart, Target, andJCPenney.

• Some retail chains are divisions of larger corporations or holding

C. Franchises

• Franchising is a method to do business that involves a contractualagreement between two parties - a franchisor and a franchisee, for themarketing and distribution of products and services.

The Franchisor: is the provider of the franchise.

The Franchisee: is the person who pays for and purchases a franchise froma franchisor and operates a business using the name, product, businessformat and other items provided by the franchisor.

• The franchise concept began in the 1850s when Singer Sewing MachineCompany (franchisor) sold sales rights to independent entrepreneurs(franchisees) in an effort to raise business capital.

• McDonald’s was one of the first companies to sell franchises internationallyin the 1970s.

C. Franchises

• In a franchise contract,

The franchisee pays a lump sum plus a royalty on all sales for the right tooperate a store in a specific location.

The franchisee agrees to operate the outlet in accordance with proceduresprescribed by the franchisor.

The franchisor provides assistance in locating and building the store,developing the products or services sold, training managers, andadvertising.

To maintain each franchisee’s reputation, the franchisor also makes surethat all outlets provide the same quality of services and products.

The franchise ownership format attempts to combine the advantages ofowner managed businesses with the efficiencies of centralized decisionmaking in chain store operations.

C. Franchises

According to the International Franchise Association, A franchise is theagreement or license between two legally independent parties which gives:

• a person or group of people (franchisee) the right to market a product orservice using the trademark or trade name of another business (franchisor)

• the franchisee the right to market a product or service using the operatingmethods of the franchisor

• the franchisee the obligation to pay the franchisor fees for these rights

• the franchisor the obligation to provide rights and support to franchisees

Types of Franchising 1. Product Franchise: In this type, manufactures control how retail storesdistribute their products. Through this kind of agreement, manufacturersallow retailers to distribute their products and to use their names andtrademarks. To obtain these rights, store owners must pay fees or buy aminimum amount of products

2. Manufacturing Franchise: Through manufacturing franchises, a franchisergrants a manufacturer the right to produce and sell goods using its name andtrademark. This type of franchise is common among food and beveragecompanies.

3. Business Format Franchise: In this format, a company expands bysupplying independent business owners with an established business,including its name and trademark.

Advantages of Franchising

• Easy Start of Business

• Continuous Support (may be in terms of training and development, sharingrecipes, promotional campaigns, marketing etc.)

• Business Relationships

• Increased Purchasing Power

• Lower Failure Rate

• Credibility

• Goodwill/ Recognition

Limitations of Franchising

• Franchise Costs

• Lack of Creativity and Excessive Control

• Restrictions

References1. Michael Levy & Barton A Weitz, “Retailing Management”, 8th Edition, Tata

Mc Graw Hill.

2. Swapna Pradhan, “Retailing Management – Text and Cases”, 4th Edition,Tata Mc Graw Hill.

3. Nagpal, Sharma, Kukreja “Retail Management”, Vipul Prakashan

To accompany A Framework for Marketing Management, 2nd Edition Slide 3 in Chapter 15©2003 Prentice Hall, Inc.

RetailingRetailing

Retailing Basics

Types of retailers

Marketing decisions

Retailing trends

Retail life cycle

Wheel-of-retailing

Service levels

Retail positioning strategies

Nonstore retailing

Corporate retailing

UNIT 3


RetailingRetailing

Specialty store

Department store

Supermarket

Discount store

Convenience store

Off-price retailer

Superstore

Major Store Retailer Types


RetailingRetailing

Retail-store types pass through the retail life cycle.

The wheel-of-retailing describes how new store types emerge.

Retailers can offer one of four levels of service:– Self-service, self-selection, limited

service, and full service


RetailingRetailing

Four broad retail positioning strategies include:– Bloomingdale’s– Tiffany– Sunglass Hut– Wal-Mart

Non-store retailing has been growing faster than store retailing


RetailingRetailing

Corporate chain store

Voluntary chain

Retailer cooperative

Consumer cooperative

Franchise organization

Merchandising conglomerate

Major Types of Retail Organizations


RetailingRetailing

Retailing Basics

Types of retailers

Marketing decisions

Retailing trends

Target market

Product assortment and placement

Services mix and store atmosphere

Price

Promotion

Place


RetailingRetailing

General business district

Regional shopping center

Community shopping center

Strip mall (shopping strip)

Location within a larger store or operation

Location Options for Retailers


RetailingRetailing

Retailing Basics

Types of retailers

Marketing decisions

Retailing trends

New retail forms

Intertype competition

Growth of giant retailers

Technology

Global expansion

Selling experiences

Competition between store-based and non-store-based retailing


WholesalingWholesaling

Wholesaling

Wholesaling basics

Types of wholesalers

Marketing decisions

Wholesaling trends

Wholesaling excludes manufacturers, farmers, and retailers

Wholesalers differ from retailers in three key ways

Wholesalers handle many functions more efficiently than do manufacturers



Selling and promoting

Buying and assortment building

Bulk breaking

Warehousing

Transportation

Financing

Risk bearing

Market information

Wholesaler Functions



Wholesaling

Wholesaling basics

Growth and types of wholesalers

Marketing decisions

Wholesaling trends

Wholesalers vary in type and function

Wholesaling has been growing due to two key factors:

– Many factories are located far from buyers

– An increasing need to adapt product quantities, features, or packages to meet buyer needs



Merchant wholesalers

Full-service wholesalers

Limited-service wholesalers

Brokers & agents

Brokers

Agents

Manufacturers’ and retailers’ branches and offices

Miscellaneous wholesalers

Major Wholesaler Types



Wholesaling

Wholesaling basics


Marketing decisions

Wholesaling trends

Target market

Product assortment and placement

Price

Promotion

Place



Wholesaling

Wholesaling basics


Marketing decisions

Wholesaling trends

Direct buying trends initially threatened wholesalers

Wholesalers have adapted by:– Adding value– Reducing costs– Strengthening

relationships with manufacturers


Market LogisticsMarket Logistics

Interrelated Aspects Associated with Market Logistics:– Physical distribution– Supply chain management (SCM)– Value network– Demand chain planning– Market logistics– Integrated logistics systems (ILS)



Key Elements

Market-logistics objectives

Market-logistics decisions

Market logistics lessons

Logistics involve trade-offs between costs and customer service

Maximizing profits, not sales, is key

A total system basis should be considered

Designing a system that will minimize the cost of achieving objectives should be the outcome



M = T + FW + VW + SWhere . . .

M = total market-logistics cost of proposed system; T = total freight cost of proposed system;FW = total fixed warehouse cost of proposed system;VW = total variable warehouse cost of proposed system S = total cost of lost sales due to average delivery delay

Calculating the Cost of Market-Logistics Systems



Key Elements




Order processing

Warehousing– Storage, distribution,

automated warehouses

Inventory– Determine reorder point,

relevant cost comparison, optimal order quantity

Transportation– Containerization– Private vs. contract

carriers



Key Elements




A senior V.P. is needed as the single contact point for all logistical elements

Senior V.P. must maintain close control

Software and systems are essential for competitively superior logistics performance

Channel Design Factors

• Product mix and nature of the product

• Width and depth of market / outlet coverage planned

• Long term commitments to channel partners

• Level of customer service planned

• Cost affordable on the channel system

UNIT 4

Channel Design Steps

• Define customer needs

• Clarify channel objectives

• Look at alternative systems which can meet these

objectives

• Estimate cost of operating the channel system

• Evaluate available alternatives

• Finalize the ‘ideal’ system

Customer Needs

• Lot size – most convenient pack size which the consumer can

buy at a time

• Waiting time – time elapsed between the desire to buy the

product and the time when he can actually buy it – should be

almost zero

• Variety – choice of products, brands, packs

• Place utility – choice of buying where he wants. For a consumer

product it has to be at a location closest to his residence

Channel Design Components

• Revenue generation

• Physical delivery of the goods or services – the logistics part

• The ‘service’ part to take care of after-sales support

• Each part of the system is likely to be handled by a different

entity.

Channel Design Issues

• Who will perform Activity

• Activities relationship to service levels

• Number of channel members required and the relationship

between categories

• Roles, responsibilities, remuneration and appraisal of

performance of channel members

Channel Design Process

Segmentation

Development

Focus

Positioning

Similar to any other marketing task

Segmentation

• Putting customers in similar clusters based on their needs

• Each segment has a different need to be serviced by the

channel

• Gives an idea to the sales manager as to the kind of channel

members he should be planning for.

Positioning

• Its objective is to occupy a clear, unique, and advantageous position in

the consumer's mind.

• A marketing strategy that aims to make a brand occupy a

separate position, relative to competing brands, in the mind of the

customer.

• Companies apply this strategy either by emphasizing the unique features of

their brand or they may try to create a suitable image (inexpensive

or premium, luxurious, entry-level or high-end, etc.) through advertising.

Focus

• It may not be possible to meet the needs of all segments – cost

and practicality considerations (the managerial talent available

for instance)

• The sales manager has to firmly decide which of the segments

he will service

• The competitive scenario also helps in this decision

Development

• At this stage the channel system is being put in place to

achieve the objectives

• Select the best of the alternatives

– Comparison with the most successful competitor could be a good

benchmark

• Channel partners of competitors may be willing to share best

practices of their principals

• For modifying an existing channel, the gap between the ideal

and the existing is to be identified for corrective action.

Channel Objectives

• Defines what the channel system is supposed to do to support

customer service.

• Customer needs could include:

– Lot size convenience

– Minimum waiting time

– Variety and collection

– Place utility

• The product characteristics and the market profile also impact

the objectives.

• Competition could also affect the objectives

Channel Alternatives

• Are planned after deciding the customer segments to be

serviced and the levels of service

– Business intermediaries currently available like C&FAs, distributors,

dealers, agents wholesalers and retailers.

– The number and type of intermediaries required

– Developing new channel types

– Roles of each channel member

Evaluation of Major Alternatives

Cost of operations

Ability to manageand control

Adaptability

Range and volumeto be handled

Criteria for evaluation

Evaluation Critieria

• Cost:

– If existing sales force can be expanded cost effectively, this is the best

alternative

– System with the lowest cost is preferred

• Adaptability – the channel should be flexible to handle different

types of markets and changes in the market conditions

• Volume and range to be handled – Capable even when

business grows or expands

Evaluation Criteria

• Ability to manage and control:

• Distribution network being an extended arm of the company, the

channel partners have some obligations

• Operating guidelines specify these rules

• The channel system should help the company enforce these rules

fairly to all channel partners

• Some of the operating rules are……

• Company trains channel personnel and provides proper product literature

Selecting Channel Partners

• Getting good channel partners is a difficult part of doing

business

• Some of the methods employed to select channel partners are:

– Sales people identify prospects and talk to them

– Press advertising (industrial goods)

– Existing channel partners can give good references

– Competitors’ channel members for reference

Selection Criteria

• Qualitative: willingness, confidence in company products,

willingness to take by company rules, building company image,

innovativeness, , infrastructure, location, customer

relationships, market standing

• Quantitative: financial status present businesses, etc

Training Channel Members

• Starts from the time of recruitment

• Channel member owner and his staff

• Market views channel member as part of the company – he has

to behave in a like manner – hence training assumes

significance

• Training could be on the job field training or classroom training

• Training is an ongoing process.

Subjects for Training

• Field training on how the markets are to be worked to achieve

sales, collect payments

• Class room training on company products, competition and how

to tackle it to gain market shares

• Special meetings for new product launches

• Submitting reports and maintaining records

Subjects for Training

• Care of company products

• Technical specifications and answering FAQs of customers

• For technical and industrial products – recognition of specs,

installation procedure, repair and maintenance and effective

demonstrations

• Servicing of automobiles and other engineering products

Motivating Channel Members

• Ambitious volume and growth targets – continuous motivation

required to achieve

• Motivation includes:

– Capacity building programs

– Training

– Promotions support

– Marketing research support

– Working with company personnel

– Incentives

“Power” of Motivation

• Reward – positive support

• Coercion- threat of punitive action

• Referent – positive effects of association

• Legitimate – enforcing a contract

• Expert – support of special knowledge

• Support – additional benefits for performers

• Competition – pitting against peers

Channel Members Evaluation

• Effectiveness of the distribution channel determines the

success of the company

• Company would like its channel partners to perform at the

highest standards possible

• Need to constantly evaluate performance on sales targets,

coverage, productivity, inventory holdings etc

ROI as a Measure

• Leading FMCG companies feel that an ROI of 30% for a

distributor is healthy and is a fair indication that he is performing

well.

– If the ROI is more, additional tasks are given

– If the ROI is less, the company may provide additional support

• Post evaluation tasks include counseling, retraining and

motivating. In extreme cases it may result in termination.

Performance Evaluation

• Specific targets on periodical basis are set.

– Targets on volume and outlet productivity could be for a week or a

month

– Targets relating to increasing market shares or total outlet

coverage could be for 6 months

– Different weightages could be given for each of the parameters for

evaluation

• The performance appraisal is open and transparent

Steps for Modifying Networks

• Service level desired and willing to deliver

• Activities required to deliver service level, who will do it and at what cost

• Derive ideal channel structure and compare with existing to know gaps by

evaluating based on standard parameters relating to effectiveness and

efficiency

• Action to bridge the gaps and put modified channel system into place

• Define key performance indicators

Channel Comparison Factors

Efficiency

Effectiveness

Scalability

Flexibility

Consistency

Reliability

Integrity

Non-store Retailing

• Selling door-to-door

• Vending machines

• Tele-shopping networks

• Selling through catalogs

• Other forms of direct selling

• Electronic channels

Retailing on the Internet

• Unlimited assortment

• Items may not be on hold

• No product touch or feel

• More information makes the customer a better shopper

• Comparison shopping possible

• Consumer has to plan purchases ahead

• No need to handle cash – payment can be on-line

• Shopping is 24X7

Vertical Integration

• This means owning the channel. The company does the work

of production, branding and distribution.

• Downstream integration means the producer of the goods also

does the distribution – Eureka Forbes, Bata

Vertical Integration

• Upstream integration means the seller also produces the goods

– private labels of modern retailers.

• If the organization does the work of production, branding and

distribution, it is said to be vertically integrated.

• Vertical Integration provides better control over the distribution

function

Outsourcing Distribution

• Is the most common situation as:

– The ‘reach’ is better

– The cost may be lower

– The company can exploit the ‘core competence’ of its channel partners,

which is distribution

• Vertical integration is a choice which will become long term and cannot be

easily changed once the resources have been committed.

• However, direct distribution (owning the channel) is still the best solution for

‘intensive’ / concentrated distribution.

Key Learnings

• The nature of distribution channels required in different situations is

based on a number of factors

• Channel design takes into account all the service deliverables

required by customers

• Intensity of distribution determines the number of intermediaries

required

• Distribution can be in-house (vertical integration) or out-sourced

• Channel design alternatives are assessed primarily on effectiveness

and efficiency

Key Learnings

• Channel alternatives are evaluated on cost, ability to control,

adaptability and capability to handle range and volume.

• Training of channel partners can be in the class room or on the job

and is a continuous process

• Motivating channel partners can be done using different ‘power’

equations

• There are different formats of non-store retailing like catalogues,

internet etc

• Electronic channels are used to sell products to consumers directly

End of Session

Session I - New Delhi Institute of Management

Documents

Transcript of Session I - New Delhi Institute of Management