Sales management refers to the administration of the personal selling component of an organization's marketing program. It includes the planning, implementation, and control of sales programs, as well as recruiting, training, motivating, and evaluating members of the sales force. The fundamental role of the sales manager is to develop and administer a selling program that effectively contributes to the achievement of the goals of the overall organization. The term "sales manager" may be properly applied to several members of an organization, including: marketing executives, managers of field sales forces, district and division managers, and product line sales administrators. This text emphasizes the role of managers that oversee a field sales force.
BACKGROUNDThe discipline of marketing management emerged during the Industrial Revolution, when mass production resulted in the creation of large organizations, and technological advances related to transportation and communication enhanced access to geographic markets. The two developments contributed to a growing need for the management of groups of sales people in large companies.
During the 20th century, some observers have described four evolutionary stages of sales and marketing management. The first stage, which lasted until the beginning of the Great Depression, was characterized by an emphasis on engineering and production. Managers in those functional areas generally determined the company's goals and plans. They developed products and set prices with the assumption that the customers would naturally buy whatever they could get to the market. The job of the sales departments, then, was simply to facilitate the smooth flow of goods from the company to the consumer.
The maxim "build a better mousetrap and the people will come," was effectively dashed by the Depression, when producers found that selling products could be much more difficult than churning them out. Sales people and managers were elevated to a new status, and their input into product planning and organizational goal setting increased. It was also during this period that "hard sell" tactics, which still embody the stereotype often ascribed to automobile and aluminum siding salesmen, were developed. The hard sell philosophy reflected the propensity of most organizations to focus on getting the customer to want the product that was being offered rather than delivering what the customer desired. This second evolutionary stage extended from the 1930s into the 1950s.
During the 1960s and 1970s, companies in the United States began to embrace the concept of marketing, which initiated a shift of the organizational focus from selling to customer satisfaction and more efficient advertising and promotional practices. The adoption of marketing techniques essentially involved the integration of the selling side of business into related functions, such as budgeting, inventory control, warehousing, and product development. Despite the emergence of the marketing philosophy, however, most manufacturing companies continued to emphasize the production side of their business.
Sales management at U.S. companies entered a fourth evolutionary stage during the 1980s, characterized by a marked shift from a supply-side marketing orientation to customer orientation. Several factors prompted this change. Increased foreign competition, particularly from Japan, posed a serious threat to American companies, which were comparatively inefficient and unaware of customer wants. In addition, a slowdown in U.S. market growth resulted in greater competition between domestic rivals. Finally, a change in social orientation demanded that companies focus on creating and selling products that would provide a better quality of life, rather than a higher material standard of living. This change was evidenced by the proliferation of laws protecting the environment and mandating product safety.
The result of changes during the 1980s and early 1990s was that sales and marketing specialists were forced to concentrate their efforts on determining precisely what customers wanted, and efficiently providing it. This change necessitated greater involvement by sales managers in the goal-setting and planning activities of the overall organization. This broadened scope meant that sales managers were expected to develop a more rounded body of knowledge that encompassed finance, operations, and purchasing.
At the same time, sales managers were forced to deal with other pivotal economic and social changes. Chief among socioeconomic trends of the 1980s and early 1990s was the evolution of marketing media. As the cost of the average industrial sales call rocketed from less than $100 in 1977 to more than $250 by the late 1980s, marketing and sales managers began to stress other sales tools. Direct mail and telephone sales became efficient direct marketing alternatives to face-to-face selling. They also surfaced as important media that sales managers could use to augment the efforts of their sales people in the field.
Costs have been contained somewhat in the intervening years. As of 1997, according to a survey by the trade journal Sales & Marketing Management, the average sales call across all industry segments and for sales agents of all levels of experience cost $113.25. Manufacturing continued to be the industry sector with the most expensive sales structure, with costs averaging $159 per call. Wholesaling was at the other end of the spectrum, averaging just $80 per call. As a percentage of total revenues, sales calls in the service industries tend to be highest, representing 13 percent on average. Sales call expenses in manufacturing, retailing, and wholesaling all averaged between 6 percent and 7 percent, according to the study.
Nonetheless, in the late 1990s sales cost cutting continued to be a priority at many companies. Among the methods increasingly used to trim selling overhead were having sales reps work out of their own homes, at least until they built up a certain amount of sales volume, and eliminating (more accurately, distributing) some of the functions of the traditional sales manager. Indeed, some companies boasted that they could operate without sales managers, as sales forces were becoming increasingly mobile and decentralized and as information technology provided the essential linkages between management and the sales force. Automation of sales-related activities was a major—and often frustrating—drive during the second half of the 1990s. This so-called sales force automation (SFA) was intended to maximize the efficiency of sales agents' work and to better coordinate sales activities with other functions in the business. However, as many as half of these software systems installed did not live up to the companies' expectations. Despite this, most in the field now see automation as a baseline requirement for nearly any sales force.
THE ROLE OF SALES MANAGEMENTAlthough the role of sales management professionals is multidisciplinary, their primary responsibilities are: (1) setting goals for a sales-force; (2) planning, budgeting, and organizing a program to achieve those goals; (3) implementing the program; and (4) controlling and evaluating the results. Even when a sales force is already in place, the sales manager will likely view these responsibilities as an ongoing process necessary to adapt to both internal and external changes.
GOAL SETTINGTo understand the role of sales managers in formulating goals, one must first comprehend their position within the organization. In fact, sales management is just one facet of a company's overall marketing strategy. A company's marketing program is represented by its marketing mix, which encompasses strategies related to products, prices, promotion, and distribution. Objectives related to promotion are achieved through three supporting functions: (1) advertising, which includes direct mail, radio, television, and print advertisements, among other media; (2) sales promotion, such as contests and coupons; and (3) personal selling, which encompasses the sales force manager.
The overall goals of the sales force manager are essentially mandated by the marketing mix. The mix coordinates objectives between the major components of the mix within the context of internal constraints, such as available capital and production capacity. For example, the overall corporate marketing strategy may dictate that the sales force needs to increase its share of the market by five percent over two years. It is the job of the sales force manager, then, to figure out how to achieve that directive. The sales force manager, however, may also play an important role in developing the overall marketing mix strategies that determine his objectives. For example, he may be in the best position to determine the specific needs of customers and to discern the potential of new and existing markets.
One of the most critical duties of the sales manager is to accurately estimate the potential of the company's offerings. An important distinction exists between market potential and sales potential. The former is the total expected sales of a given product or service for the entire industry in a specific market over a stated period of time. Sales potential refers to the share of a market potential that an individual company can reasonably expect to achieve. According to Irwin, a sales forecast is an estimate of sales (in dollars or product units) that an individual firm expects to make during a specified time period, in a stated market, and under a proposed marketing plan.
Estimations of sales and market potential are often used to set major organizational objectives related to production, marketing, distribution, and other corporate functions, as well as to assist the sales manager in planning and implementing his overall sales strategy. Numerous sales forecasting tools and techniques, many of which are quite advanced, are available to help the sales manager determine potential and make forecasts. Major external factors influencing sales and market potential include: industry conditions, such as stage of maturity; market conditions and expectations; general business and economic conditions; and the regulatory environment.
PLANNING, BUDGETING, AND ORGANIZINGAfter determining goals, the sales manager must develop a strategy to attain them. A very basic decision is whether to hire a sales force or to simply contract with representatives outside of the organization. The latter strategy eliminates costs associated with hiring, training, and supervising workers, and it takes advantage of sales channels that have already been established by the independent representatives. On the other hand, maintaining an internal sales force allows the manager to exert more control over the salespeople and to ensure that they are trained properly. Furthermore, establishing an internal sale force provides the opportunity to hire inexperienced representatives at a very low cost.
The type of sales force developed depends on the financial priorities and constraints of the organization. If a manager decides to hire salespeople, he needs to determine the size of the force. This determination typically entails a compromise between the number of people needed to adequately service all potential customers and the resources made available by the company. One technique sometimes used to determine size is the "work load" strategy, whereby the sum of existing and potential customers is multiplied by the ideal number of calls per customer. That sum is then multiplied by the preferred length of a sales call (in hours). Next, that figure is divided by the selling time available from one sales person. The final sum is theoretically the ideal sales force size. A second technique is the "incremental" strategy, which recognizes that the incremental increase in sales that results from each additional hire continually decreases. In other words sales people are gradually added until the cost of a new hire exceeds the benefit.
Other decisions facing a sales manager about hiring an internal sales force are what degree of experience to seek and how to balance quality and quantity. Basically, the manager can either "make" or "buy" his force. Young hires, or those whom the company "makes," cost less over a long term and do not bring any bad sales habits with them that were learned in other companies. On the other hand, the initial cost associated with experienced sales people is usually lower, and experienced employees can start producing results much more quickly. Furthermore, if the manager elects to hire only the most qualified people, budgetary constraints may force him to leave some territories only partially covered, resulting in customer dissatisfaction and lost sales.
After determining the composition of the sales force, the sales manager creates a budget, or a record of planned expenses that is (usually) prepared annually. The budget helps the manager decide how much money will be spent on personal selling and how that money will be allocated within the sales force. Major budgetary items include: sales force salaries, commissions, and bonuses; travel expenses; sales materials; training; clerical services; and office rent and utilities. Many budgets are prepared by simply reviewing the previous year's budget and then making adjustments. A more advanced technique, however, is the percentage of sales method, which allocates funds based on a percentage of expected revenues. Typical percentages range from about two percent for heavy industries to as much as eight percent or more for consumer goods and computers.
After a sales force strategy has been devised and a budget has been adopted, the sales manager should ideally have the opportunity to organize, or structure, the sales force. In general, the hierarchy at larger organizations includes a national or international sales manager, regional managers, district managers, and finally the sales force. Smaller companies may omit the regional, and even the district, management levels. Still, a number of organizational considerations must be addressed.
For example:
* Should the force emphasize product, geographic, or customer specialization?
* How centralized will the management be?
* How many layers of management are necessary?
The trend during the 1980s and early 1990s was toward flatter organizations, which possess fewer levels of management, and decentralized decision-making, which empowers workers to make decisions within their area of expertise.
IMPLEMENTINGAfter goal setting, planning, budgeting, and organizing, the sales force plan, budget, and structure must be implemented. Implementation entails activities related to staffing, designing territories, and allocating sales efforts. Staffing, the most significant of those three responsibilities, includes recruiting, training, compensating, and motivating sales people.
Before sales managers can recruit workers to fill the jobs, they must analyze each of the positions to be filled. This is often accomplished by sending an observer into the field. The observer records time spent talking to customers, traveling, attending meetings, and doing paperwork. The observer then reports the findings to the sales manager, who uses the information to draft a detailed job description. Also influencing the job description will be several factors, chiefly the characteristics of the people on which the person will be calling. It is usually important that salespeople possess characteristics similar to those of the buyer, such as age and education.
The manager may seek candidates through advertising, college recruiting, company sources, and employment agencies. Candidates are typically evaluated through personality tests, interviews, written applications, and background checks. Research has shown that the two most important personality traits that sales people can possess are empathy, which helps them relate to customers, and drive, which motivates them to satisfy personal needs for accomplishment. Other factors of import include maturity, appearance, communication skills, and technical knowledge related to the product or industry. Negative traits include fear of rejection, distaste for travel, self-consciousness, and interest in artistic or creative originality.
After recruiting a suitable sales force, the manager must determine how much and what type of training to provide. Most sales training emphasizes product, company, and industry knowledge. Only about 25 percent of the average company training program, in fact, addresses personal selling techniques. Because of the high cost, many firms try to reduce the amount of training. The average cost of training a person to sell industrial products, for example, commonly exceeds $30,000. Sales managers can achieve many benefits with competent training programs, however. For instance, research indicates that training reduces employee turnover, thereby lowering the effective cost of hiring new workers. Good training can also improve customer relations, increase employee morale, and boost sales. Common training methods include lectures, cases studies, role playing, demonstrations, on-the-job training, and self-study courses.
After the sales force is in place, the manager must devise a means of compensating individuals. The main conflict that must be addressed is that between personal and company goals. The manager wants to provide sufficient incentives for salespeople but also must meet the division's or department's goals, such as controlling costs, boosting market share, or increasing cash flow. The ideal system motivates sales people to achieve both personal and company goals. Good salespeople want to make money for themselves, however, a trait which often detracts from the firm's objectives. Most approaches to compensation utilize a combination of salary and commission or salary and bonus.
Although financial rewards are the primary means of motivating workers, most sales organizations employ other motivational techniques. Good sales managers recognize that sales people, by nature, have needs other than the basic physiological needs filled by money: they want to feel like they are part of winning team, that their jobs are secure, and that their efforts and contributions to the organization are recognized. Methods of meeting those needs include contests, vacations, and other performance based prizes in addition to self-improvement benefits such as tuition for graduate school. Another tool managers commonly use to stimulate their workers is quotas. Quotas, which can be set for factors such as the number of calls made per day, expenses consumed per month, or the number of new customers added annually, give salespeople a standard against which they can measure success.
In addition to recruiting, training, and motivating a sales force to achieve the sales manager's goals, managers at most organizations must decide how to designate sales territories and allocate the efforts of the sales team. Many organizations, such as real estate and insurance companies, do not use territories, however. Territories are geographic areas such as cities, counties, or countries assigned to individual salespeople. The advantage of establishing territories is that it improves coverage of the market, reduces wasteful overlap of sales efforts, and allows each salesperson to define personal responsibility and judge individual success.
Allocating people to different territories is an important sales management task. Typically, the top few territories produce a disproportionately high sales volume. This occurs because managers usually create smaller areas for trainees, medium-sized territories for more experienced team members, and larger areas for senior sellers. A drawback of that strategy, however, is that it becomes difficult to compare performance across territories. An alternate approach is to divide regions by existing and potential base. A number of computer programs exist to help sales managers effectively create territories according to their goals.
CONTROLLING AND EVALUATINGAfter setting goals, creating a plan, and setting the program into motion, the sales manager's responsibility becomes controlling and evaluating the program. During this stage, the sales manager compares the original goals and objectives with the actual accomplishments of the sales force. The performance of each individual is compared with goals or quotas, looking at elements such as expenses, sales volume, customer satisfaction, and cash flow. A common model used to evaluate individual sales people considers four key measures: the number of sales calls, the number of days worked, total sales in dollars, and the number of orders collected. The equation below can help to identify a deficiency in any of these areas:
An important consideration for the sales manager is profitability. Indeed, simple sales figures may not reflect an accurate image of the performance of the overall sales force. The manager must dig deeper by analyzing expenses, price-cutting initiatives, and long-term contracts with customers that will impact future income. An in-depth analysis of these and related influences will help the manager to determine true performance based on profits. For use in future goal-setting and planning efforts, the manager may also evaluate sales trends by different factors, such as product line, volume, territory, and market.
After the manager analyzes and evaluates the achievements of the sales force, that information is used to make corrections to the current strategy and sales program. In other words, the sales manager returns to the initial goal-setting stage.
ENVIRONMENTS AND STRATEGIESThe goals and plans adopted by the sales manager will be greatly influenced by the industry orientation, competitive position, and market strategy of the overall organization. It is the job of sales managers, or people employed in sales-management-related jobs, to ensure that their efforts coincide with those of upper-level management.
The basic industry orientations are industrial goods, consumer durables, consumer nondurables, and services. Companies or divisions that manufacture industrial goods or sell highly technical services tend to be heavily dependent on personal selling as a marketing tool. Sales managers in those organizations characteristically focus on customer service and education, and employ and train a relatively high-level sales force. Sales managers that sell consumer durables will likely integrate the efforts of their sales force into related advertising and promotional initiatives. Sales management efforts related to consumer nondurables and consumer services will generally emphasize volume sales, a comparatively low-caliber sales force, and an emphasis on high-volume customers.
Michael Porter's well-received book Competitive Strategy lists three common market approaches that determine sales management strategies: low-cost supplier; differentiation; and niche. Companies that adopt a low-cost supplier strategy are usually characterized by a vigorous pursuit of efficiency and cost controls. A company that manufactures nails and screws would likely take this approach. They profit by offering a better value than their competitors, accumulating market share, and focusing on high-volume and fast inventory turn-over. Sales management efforts in this type of organization should generally stress the minimizing of expenses—by having sales people stay at budget hotels, for example—and appealing to customers on the basis of price. Sales people should be given an incentive to chase large, high-volume customers, and the sales force infrastructure should be designed to efficiently accommodate large order-taking activities.
Companies that adhere to a differentiation strategy achieve market success by offering a unique product or service. They often rely on brand loyalty or a patent protection to insulate them from competitors and, thus, are able to achieve higher-than-average profit margins. A firm that sells proprietary pharmaceuticals would likely use this method. Management initiatives in this type of environment would necessitate selling techniques that stressed benefits, rather than price. They might also entail a focus on high customer service, extensive prospecting for new buyers, and chasing customers that were minimally sensitive to price. In addition, sales managers would be more apt to seek high-caliber sellers and to spend more money on training.
Firms that pursue a niche market strategy succeed by targeting a very narrow segment of a market and then dominating that segment. The company is able to overcome competitors by aggressively protecting its niche and orienting every action and decision toward the service of its select group. A company that produced floor coverings only for extremely upscale commercial applications might select this approach. Sales managers in this type of organization would tend to emphasize extensive employee training or the hiring of industry experts. The overall sales program would be centered around customer service and benefits other than price.
In addition to the three primary market strategies, Raymond Miles and Charles Snow claim that most companies can be grouped into one of three classifications based on their product strategy: prospector, defender, and analyzer. Each of these product strategies influences the sales management role. For example, prospector companies seek to bring new products to the market. Sales management techniques, therefore, tend to emphasize sales volume growth and market penetration through aggressive prospecting. In addition, sales people may have to devote more time to educating their customers about new products.
Defender companies usually compete in more mature industries and offer established products. This type of firm is likely to practice a low-cost producer market strategy. The sales manager's primary objective is to maintain the existing customer base, primarily through customer service and by aggressively responding to efforts by competitors to steal market share.
Finally, analyzer companies represent a mix of prospector and defender strategies. They strive to enter high-growth markets while still retaining their position in mature segments. Thus, sales management strategies must encompass elements used by both prospector and defender firms.
REGULATIONBesides markets and industries, another chief environmental influence on the sales management process is government regulation. Indeed, selling activities at companies are regulated by a multitude of state and federal laws designed to protect consumers, foster competitive markets, and discourage unfair business practices.
Chief among anti-trust provisions affecting sales managers is the Robinson-Patman Act, which prohibits companies from engaging in price or service discrimination. In other words, a firm cannot offer special incentives to large customers based solely on volume, because such practices tend to hurt smaller suppliers. Companies can give discounts to buyers, but only if those incentives are based on savings gleaned from manufacturing and distribution processes.
Similarly, the Sherman Act makes it illegal for a seller to force a buyer to purchase one product (or service) in order to get the opportunity to purchase another product, a practice referred to as a "tying agreement." A long-distance telephone company, for instance, cannot necessarily require its customers to purchase its telephone equipment as a prerequisite to buying its long-distance service. The Sherman Act also regulates reciprocal dealing arrangements, whereby companies agree to buy products from each other. Reciprocal dealing is considered anticompetitive because large buyers and sellers tend to have an unfair advantage over their smaller competitors.
Also, several consumer protection regulations impact sales managers. The Fair Packaging and Labeling Act of 1966, for example, restricts deceptive labeling, and the Truth in Lending Act requires sellers to fully disclose all finance charges incorporated into consumer credit agreements. Cooling-off laws, which commonly exist at the state level, allow buyers to cancel contracts made with door-to-door sellers within a certain time frame. Additionally, the Federal Trade Commission (FTC) requires door-to-door sellers who work for companies engaged in interstate trade to clearly announce their purpose when calling on prospects.
SALES MANAGEMENT CAREERSIn many ways, sales managers are similar to other marketing managers in the organization in that they are assigned a profit center for which they are ultimately responsible and for which they are expected to oversee all activities. Naturally sales manager's jobs also differ from other marketing-related management positions. Foremost among the differences is the geographical positioning of subordinates. In order to cut sales costs, companies attempt to disperse their sales forces evenly throughout the entire selling zone. This division reduces the sales manager's ability to directly oversee their work. As a result, sales managers must spend much more of their time traveling than other managers.
Another distinguishing characteristic of sales management positions is their high exposure. Sales managers are usually on the "front lines" of their company's war in the competitive market. And, because of detailed weekly, or even daily, reports showing sales and profit data, their performance can be easily judged by superiors and coworkers. A corollary of the ease in measuring their performance is that their compensation plans typically differ from managers in areas such as finance or operations. Often, much of their compensation comes in the form of bonuses linked to statistics indicative of the success of the overall sales force. Based on published estimates, the typical senior sales representative in 1998 earned $68,000 a year, excluding bonuses and incentive pay, which were likely to put the figure at closer to $90,000. A typical salary for a district sales manager was $75,000, and for a regional sales manager, $80,000. Sales executives earned on average of $110,000. Importantly, online sales managers such as individuals who manage Internet sales activities for a company took in an impressive $117,000 in the middle category of earners, with top online sales managers averaging $150,000.
Despite their administrative orientation, many sales managers continue to spend much of their time selling. In fact, at least one study made during the 1970s indicated that sales managers spend about 35 percent of their time engaged in sales activities, including making important sales calls with their sales people and dealing with problem accounts. The study also revealed that about 20 percent of the managers' time, on average, was used to train people, establish performance standards, and handle other personnel matters. The remainder of the time was dedicated mostly to marketing, administrative, and financial tasks. How sales managers spend their time continues to be a subject of controversy at cost-conscious companies as they seek to maximize the value generated by all employees and managers.
POSITIONSSales managers commonly begin their careers as salespeople. In some instances, particularly in companies that sell products and services directly to customers, sales people may assume a management role in as little as six months. Typically, however, at least a few years of field sales experience is required to become eligible for a management position. In the case of firms that market highly technical industrial products, a competent sales person may have to work in the field for five or ten years before being promoted.
A common progression for a manager of a field sales force is district, regional, and then national sales manager. Some companies also have unit managers, who are typically placed in charge of four or five sales people. All of these territorial management positions are usually in direct authority over the sales force and generally entail the responsibilities outlined in this text. Most companies have a chief sales executive, or the equivalent thereof. Regardless of his or her title, that person is ultimately in charge of overseeing the successful operation of the entire field sales force program.
Some companies organize their sales forces by markets, products, or customer types, rather then territories. In those instances, sales force managers are commonly referred to as market sales managers or product sales managers. Furthermore, high-level field sales force managers, particularly in large organizations, may employ one or several assistant sales managers to handle budgeting, forecasting, research, and other duties. Finally, in addition to field sales force management positions, there are a number of sales management professionals who do not oversee sales people in the field. Such jobs include managers of sales training, customer service, and research departments.
