Part I

THE BIG PICTURE

Chapter 2:

Strategy and Sales Program Planning

The natural progression

How to make sales force and sales program decision

LEVEL 1 Top Management Decisions

Business Strategy

Marketing Strategy

LEVEL 2 Strategy Implementation Decisions

Go-to-Market Strategy

Customer Relationship Management (CRM)

Product Development Supply Chain Management Management (SCM) (PDM)

LEVEL 3 Sales Force Program Decisions

Account Relationship Strategy

Figure 2-1 The Sales Force Decision Sequence

Business Strategy

Environmental constraints Legal & regulatory Demographics Economic Conditions Technology Competitive conditions Sociocultural factors Distinct competencies Marketing Financial Technology Information Resources Financial R&D Personnel Brand Equity Production

Strategic Management Planning

Firms history management culture

Figure 2-2: Factors Influencing Strategic Management

Marketing Strategy

Corporate goals Maximize shareholder wealth Business unit objectives 12% revenue growth Grow pre-tax profits by 18% Marketing objectives Increase product As market share by 2 points Grow contributions after sales & marketing by 20% Sales department objectives Achieve sales revenue of $210 million Grow contributions after sales expenses by 25% Sales district objective Achieve sales revenue of $10.5 million in product A Obtain $7 million contributions after direct selling

Salesperson objective Achieve sales revenues of $1.2 million in product A Obtain $0.8 million in gross margin dollars

Major account objective Achieve sales revenues of $95,000 in product A Obtain an average gross margin of 80%

Figure 2-3: Hierarchy of Sales Objectives

A Look into What Companies Want . . . .

What Goals are Most Important to You?

70 60 50 40 30 20

66.1%

29.8%

31.9%

14.0%
10 0

7.7%

7.8%

Building Brand of Company/ product

Enhancing Increasing credibility sales/ of company revenue product

Investor relations

Saving costs

Other

How Successful Were You at Reaching Your Goals?

100

94% 83%

93%

80

68%
60

72% 58% 42%

40

32%
20

28% 17% 6%

7%
Saving costs Other

Building Enhancing Increasing Brand of credibility sales/ Company/ of company revenue product product

Investor relations

Types of Strategies (Generic) and Their Effect on Sales Programs

Low Cost Strategy:

Vigorous pursuit of cost reductions from experience and tight cost control.

High Profit Sales Programs:

Extensive use of independent sales agents Focused on transactional customer relationships Structured so that managers supervised a large number of salespeople Compensation was largely incentive based Salespeople were evaluated primarily on their sales outcome performance

Differentiation strategy:
Creating an offering perceived as being unique leading to high brand loyalty and low price sensitivity.

High Profit Sales Programs:

Selective use of independent sales agents Focused on long-term customer relationships Structured so that managers intensely supervised a limited number of salespeople Compensation was largely salary based Salespeople were evaluated on their behaviors as well as their outcomes.

Niche Strategy:
Servicing a target market very well, focusing all decisions with the target market needs in mind, dominating sales with the segment.

High Profit Sales Programs:

Experts in the operations and opportunities associated with a target market. Otherwise the firm adopted the program characteristics associated with the appropriate value creation strategy above.

Figure 2-4: Business Strategies and High Profit Sales Force Programs

Build Strategy

Hold Strategy

Harvest Harvest Strategy

Divest Strategy

Marketing Strategies

Expand market share in a highgrowth market

Maintain market share at the lowest costs possible

Call on targeted current customers Increase service to current customers

Reduce costs and focus on profit, not market share

Call on most profitable accounts only

Reduce inventory at lowest cost possible Divest Eliminate services

Offer exceptional pricing Focus on one time sales Minimize time commitment

Secure Added Distribution

Sales Strategies

Add new customers Provide high presale services

Provide product & market feedback

Reduce overall service levels Reduce inventory levels Maintain distribution Invest as little time as necessary

Call on targeted new customers Build current relationships

Focus on volume growth

Focus on account penetration

Figure 2-4: Business Portfolio Analysis and Sales Force Strategy

Sales Force Ranking and Sales Growth: Pharmaceuticals (1988-1990)

10% 8% 6% 4% 2% 0%

Growth

Low

High

Sales Force Ranking

Sales Force Ranking and Sales Growth: Computers (1988-1990)

15%

10%

Growth
5%

0%

Low

High

Sales Force Ranking

A More Detailed Look at Marketing Strategy

The Three Major Functions of Marketing:

Segmentation Targeting Positioning

Strategic Implementation Decisions

Steps in Developing a Go-to-Market Strategy

1. What is the best way to segment the market? 2. What are the essential activities required by each segment?

3. What group of go-to-market participants should perform the essential activities?

4. Which face-to-face selling participants should be used?

Figure 2-6 Essential Activities

Interest Creation

Post-Purchase

Pre-Purchase

Purchase

A Framework for Defining Essential Activities

Customer Size and Opportunity

Account Maintenance: Continue high-quality service Electronic Data Entry (EDI) Prompt delivery Enhance value proposition Relationships Friendship Efficiency Selling: Take orders Secure distribution Consider self-ordering (lower price)

Effectiveness Selling: Solve and consult Cooperation Customization Integration Partnership

Large

Small

Targeted Selling: Quick needs assessment and solution Explain features and benefits Economic evaluation

Buying Process

Low Information, Low Solution Needs

High Information, High Solution Needs

Figure 2-7 Potential Go-to-Market Participants

Customers and Prospects

Agents Direct Sales Distributors Integrators Force Retailers

Alliances

Advertising Promotion Direct Mail

Telemarketing

Internet

Direct

Indirect
Sales Force Options Non-Sales Force Options

Company

Figure 2-8 Comparing Various Go-to-Market Alternatives

Low Cost per Exposure

Advertising
Direct Mail Internet

Efficiency Telemarketing

Sales Force High Sales per Exposure

Effectiveness

Go-to-Market Strategy: A Large Computer Manufacturer

Direct Sales Force

Telemarketing

Partners

Internet

Industry Teams Account Teams

Inbound

Outbound

Geographic Sales Force

Customer Base

Go-to-Market Strategy: A Large Chemical Company

Direct Sales Force

Telemarketing

Account Teams

Inbound

Customer Base

Go-to-Market Strategy: A Pharmaceutical Company

Direct Sales Force

Telemarketing

Partners

Account Teams

Geographic Sales Force

Inbound

Customer Base

Go-to-Market Strategy: An Industrial Distributor

Telemarketing

Direct Sales Force

Internet

Inbound

Outbound

Account Teams

Geographic Sales Force

Customer Base

Figure 2-9 Product Development Management Subprocesses

Identify customer needs for better solutions Discovering and designing new product solutions Developing new solution prototypes

Managing internal departmental priorities and involvement

Designing activities to speed-up development process Launching new and redesigned offerings

Figure 2-10 Supply Chain Management Subprocesses

Selecting and managing supplier relationships

Managing inbound logistics

Managing internal logistics Managing outbound logistics Designing product assembly and batch manufacturing Managing process technology

Order, pricing, and terms management

Managing channel partners Managing product installation and maintenance

Figure 2-11 Customer Relationship Management Subprocesses

Identifying high value prospects Learning about product usage and application Developing and executing advertising and promotion programs Developing and executing sales programs

Developing and executing customer service programs

Acquiring and leveraging customer contact information systems Managing customer contact teams Enhancing trust and customer loyalty Cross-selling and upselling of offerings

Three Steps in Leveraging the Customer Base

Shareholder Value Driver of Cash Flow & EVA From P&L to balance sheet: Customers viewed as assets CRM;s Task: To increase shareholder value by leveraging the customer base. Focus on understanding cash flow effects and risk management CRM integrated in the business process and yearly planning process Improving the profitability of customers seen as a driver of business profit Focus on customer selection CRM viewed as a tool to achieve a bigger customer share through cross-selling and up-selling Typical in multi-product, multi-divisional environments Focus on account planning and organizational alignment

Business Driver of Profits

Sales Driver of Revenue

Figure 2-12 Sales Force Program

Marketing Objectives, Strategy, and Marketing Objectives, Strategy, and Strategy Implementation Program Strategy Implementation Program Estimates of sales Estimates of sales potential and potential and sales forecast sales forecast

Account Relationship Strategy Account Relationship Strategy

Desired Selling Actions Desired Selling Actions and Behaviors and Behaviors

Estimates of sales force Estimates of sales force size and budget size and budget

Organizational Structure Organizational Structure

Competency Development Program Competency Development Program

Leadership System Leadership System Feedback

Sales Force Program Elements Cont.

Account Relationship Strategy How long is the selling cycle? How much time is spent on customer need discovery? Will the offering be customized for each customer? Will other functional areas be involved in the sale? How much will we need to invest in the individual customer relationship? How easily can the customer switch to a competitor once the relationship is established? What are their non-selling responsibilities? How much customer face-time will salespeople have? How will sales leads be generated? How much time will be spent with new prospects? How will business with existing customers be grown? With whom in the customers organization will the sales force interact? What support will be needed to consummate a sale? How will customers be serviced?

Sales Force Selling Activities

Sales Force Program Elements Cont.

Will the sales force be specialized by product, Organizational customer, or function? Structure How many salespeople will be needed? What is the span of control for management? How many levels of management will be needed? How will territories by designed? What is the location of salespeople and managers? Will telemarketing support be needed?

Competency Experience level of new salespeople? Development Length and purpose of initial training program? Program Nature of continuing development program?

Sales Force Program Elements Cont.

Leadership Program Mix of salary, bonus, and commission compensation? Total compensation level? What additional incentive programs will be needed? What benefits will be needed? Use of quotas? How much will be spent on sales meetings? Behavioral-based evaluation metrics? Performance-based evaluation metrics? Required sales force information system?

Investment by Supplier

Investment by Customer

Figure 2-13: Alternative Types of Account Relationships

Different Sales Orientations

Product Sales
Sales Argument Profile of Sales Customer Contacts
Best products

Solution Sales
Solutions to your needs

Value Sales
Impact on your business results business consultant

Product Expert

Solution provider

Narrow Space (e.g., purchasing)

Function/ department

All levels

Offering
Success Factors

Best products with a competitive price

Product and service solutions to customer needs

Valuable solutions to support competitive advantage

Product excellence and/ or cost leadership

Understanding the customers needs

Driving customer profits and EVA

Figure 2-14: Changes in Customer Expectations of Suppliers

Traditional Relationships Little recognition of credit for past performance No responsibility for suppliers profit margins Little support for feedback from suppliers No guarantee of business relationship beyond the contract. No Performance expectations beyond the contract. Adversarial, zero-sum game. Enterprise Relationships Recognition of past performance and track record. Recognition of suppliers need to make a fair profit Feedback from suppliers encouraged. Expectations of business relationship beyond the contract. Considerable performance expectations beyond the contract. Cooperative and trusting, positivesum game.

Good 27% Very Good 10%

Fair 10%

Poor 53%

Partnering Effectiveness Index