Sales and Distribution Management

Sales and Distribution Management Sales and Distribution Strategy Sales involves delivery and transfer of ownership of the

product or service to the customer It forms the beginning of the latter part of the supply

chain post manufacture Sales constitutes the direct and most intimate contact of

the firm makes with its customers Sales is responsible for the fulfillment of the promise

made to the customer by its predecessor function-marketing

While marketing is responsible for creation of a customer, sales and after sales service are responsible for servicing and retention of the customers

Areas of Sales Management Responsibilities Forecasting of aggregate and product wise

sales, using past data and incorporating current and future trends

Designing and managing the sales workforce to meet the forecast and build long term relations with associates

Decide on critical aspects of sales policy including pricing, credit terms to customers and settlement of claims

To closely liaise with After Sales service to present a united customer care front to associates and consumers

Role of Sales Management The larger concept of marketing is the creation,

servicing and retention of customers and markets This comprises identifying customer wants, designing

and developing products/services to meet these wants Designing products, deciding initial pricing,building

awareness, persuasion-role of marketing function Sales role-Actual delivery of products/services to the

customer maximizing convenience and ensuring satisfaction

Finally fulfilling the promise made to the customer through sincere and effective after sales service

Role of Sales Management

Marketing covers want identification and development of appropriate products/services

Sales involves transfer of ownership and possession to the customer in exchange for the price she pays

Retention of the customer takes place in the after sales and customer service part of the larger marketing chain

Role of Sales Management Effective transfer of possession and ownership

to the customer This has to be done in the right place, right time

and the right manner Choice of channel members, deciding the terms

of engagement with channel partners, Sales promotion and merchandising are key responsibilities

Effective liaising with Marketing and manufacturing are essential ingredients for successful selling

Role of Sales Management Timely and accurate information on gross sales and by

product, studying current sales trends and projecting future trends are important responsibility elements

Sales has to be the secondary/tertiary sales which represents consumer off take and not as is usually the case reflect primary i.e. “push sales”

Sales constitutes the first point contact with primary and secondary customers

Image of a company and its business prospects are critically impacted by the attitude and the performance of the sales force

Managing the sales force Three fundamental issues: the right organization, the

right sales force and the right evaluation and compensation system

Key to sales force organization is the level of aggregation over product lines and choice of geographical coverage

Most Indian companies have common sales force for all product categories. A few like Philips have segmented sales force viz. audio and video products have separate sales force

Deciding the mix between specialized segmental skills and the cost benefit analysis to justify the decision is key to sales force organization

Sales force strength and organization No of persons required at various levels and positions is

decided based on geographical coverage and intensity of coverage of channel outlets (Break bulk, distributor and retail)

Benchmarking with key competitors is useful for new sales force as well as updating existing sales force

Back office and infrastructural support are key inputs in determining the sales force composition

Establishing performance standards, being “best in the class” should be the objective

Qualification should include aptitude as well as attitudinal requirements. Learning curve inputs also vital

Compensation and Incentive Systems Compensation should be competitive both externally

and internally. In India “in hand” is relevant An effective incentive system sets aggressive but

achievable and transparent targets (most Indian companies fail here)

Should reflect business priorities, be simple and easy to administer

Supporting requirements are reliable forecasts and rational budgeting

Most important- focus to be on secondary i.e. consumer sales and not primary i.e. Invoice numbers

Managing the Sales Force Deploy according to desired territorial configuration: ensure

adequate coverage breadth wise and depth wise Continuous interaction with all channel members to be ensured.

Partnership is the focus Role of senior and top management crucial. Every senior/top

person to make sales visits. Helps to be in touch with market realities

Sales persons whereabouts to be continuously monitored. Regular sales visit and performance reports a must

Training both class room and on the job to be a continuous and evolving initiative. Mentorship to be institutionalized

Regular periodic transfers between marketing, sales and after sales service personnel helps to improve integration and versatility between the three arms of the larger marketing function

Sales Strategy-choice among several options Relationship strategy aims at developing a holistic

partnership with all those involved in the buying decision e.g. computers and industrial marketing

Double win strategy ensures outcomes for both buyer and seller, requires empathizing from both, is essential part of any selling strategy

Heroic sales strategy involves money back, free replacement and persistent after sales contact. Most successful in maximizing loyalty and retention

Customer centric instead of product centric strategy shifts emphasis towards customer and away from short term sales person strategy which is increase numbers.

Methods of Selling Selling through channel partners(distributors

and dealers) Direct selling which bypasses channel

associates works for some products(personal care,household-Avon,Amway, Eureka Forbes)

Sales through large retail chains in house brands (Wal-Mart, Home Depot)

Mail order sales(Sears), telemarketing of services increasingly popular-to be questioned in terms of appropriateness(standardized, low involvement products eligible)

Channel Management and Channel strategy Distribution channels have different members

each forming a link in the chain between company and customer

We start with Ca rry ing a nd Fo rwa rd ing agents who “break bulk”

Distributors, wholesalers and retailers form the rest of the chain in that order(they are all primary customers) not final customers

Most channel members operate on remuneration of fixed costs plus variable margins on goods sold or moved

Channel strategy decisions Channel selection first step: no of factors include

market factors, competitors, intermediary availability and product factors

Market factors include customer preference for place of purchase viz. supermarket, departmental store, neighborhood outlet

Geography is important(rural customers in India prefer centralized selling locations,whereas urban prefer to shop closer to home

Sometimes new entrants can choose locations overlooked by incumbents (Wal-Mart rural Arkansas while incumbents preferred big cities)

Some Channel Definitions Distributors are bulk buyers and sellers of company

products/services. Perform all functions of primary customers viz. bulk storage, retailer servicing and participation in sales promotion

Wholesalers sometime synonymous with distributors but at others one step down the logistic chain handling sub territory of larger distributor area

Agents/brokers are channel partners who do not take title to company’s goods but act as intermediaries between seller and customers (primary or secondary) –resorted to in initial stages of establishing post manufacturing supply chain

Retailers are the last link in the supply chain, interface with the consumer/customer and are responsible for creating and maintaining the firm’s image with them.

Channel selection criteria Most firms initially go for established channel members already

partnering big players like H.L.L or Nestle Timex Watches decided to go in for enlightened, aggressive

newcomers and this paid off handsomely Stage in product life cycle important. In initial stages risk with

newcomers preferred. Later choice with company either veterans or more new comers

High tech products like info. Hardware requires substantial company support through trained personnel. Low tech products in personal care, personal ware can do with fewer company support personnel

Low value products can be sold through wholesalers and general retailers. However high value products including appliances, white goods require focused retailing and excellent after sales service infrastructure

In all cases close contact with ultimate customers is a must. Companies ignore this basic wisdom at their peril.

Roles/responsibilities of channel members Carrying &forwarding agents maintain company stock

and move it to distributors/wholesalers. Invoicing to primary customers from C.F.As

Wholesalers/distributors carry their own stocks and service retailers. Adequate territory coverage is their responsibility

Retailers stock, display and sell to their customers. Key requirement is accurate and timely reporting of stocks based on which alone reliable records of demand can be built

Retailers should also do the best in selling, and building rapport and goodwill with customers and in advising them and guiding with their best interests and the company’s as well in mind

Company responsibility to channel members Channel members should not be loaded with excess inventory

which will cause resentment and lower their commitment Every channel member should be given appropriate mix of product-

fast moving, medium and slow moving. Non moving product should be removed by company at periodic

intervals. Discount schemes do not solve the problem Company should provide adequate primary and secondary display

to channel members and point of purchase material Good appraisal and reward system should be put in place to reward

the right partner performance. Non performers should be gradually weeded out. Long term orientation should be the key to assessing all channel partners

Frequent and caring interaction with channel partners and prompt addressal of grievances will help to build and sustain enduring partnerships as opposed to opportunistic alliances

Indian Distribution Scenario

Traditional role of intermediaries viz. set up minimal infrastructure and expect guaranteed returns

Extremely high cost of logistics Lowest margins in the world Expectation of extremely low prices from

Indian mass market customers further pressurizes already low returns

Indian Distribution Scenario Challenge of working with low product portfolios

and low inventories not acceptable to firms as well as channel partners

Poorly organized and managed distribution and retail operations. Company owned and managed facilities not much better

Continuous pressure on sales force to achieve unrealistic targets results in equally unrealistic pressure on channel partners

Prevailing mindsets have to change for both firms and channel partners

The Sales Organization Functions include planning, administrative and

executive functions Planning features forecasting, budgetting and

formulation of sales policy Administrative function comprises recruitment of

sales force, training, appraisal/reward systems and control

Executive functions include sales promotion and selling routine i.e. execution of customer orders\

Objective of the sales organization is to ensure achievement of the company’s sales and profit targets

Forecasting Forecasting may be of total product/service

sales or of sub product or individual products or combinations of all

While forecasting is essentially a prediction of future sales, it usually is a projection of past sales incorporating credible trends

Desirable to give more weightage to recent period sales. At least ten previous periods data should be taken for reliability.Most Indian firms ignore these to their cost

Forecasting

For cyclical industries, need to know the length of the cycle(might change as for Indian auto industry from 4 yrs up to 1980s to 5 years post 1980s) Amplitude as % change to be measured

Cycles include macro economic cycles, industry cycles and inventory cycles(most Indian companies do not include these in their forecasts

Finally consumer sales to be measured and forecasted and not sales to channel members as is unfortunately done

Sales Budgets Sales budgets are overall sales plans

enumerated in financial terms The forecast by gross units, product groups and

individual variants to be converted into Re terms Expenses for promotions and schemes as well

as infrastructure like hoardings and shop signage to feature

Allowances for spoiled and obsolete product withdrawals to be included

Targetted levels of overall receivables and acceptable age of receivables also part of budget

Sales Budgets

Budgets should be approved by senior sales executives with their marketing and financial counterparts and finally approved by top management

Budgets should be reviewed definitely on a quarterly basis and preferably on monthly basis

Changes should be minimal but incorporated into revised budgets after approval by top management

Sales Policy

Firstly the direct/indirect issue. Do we go for direct selling? Do we use distributors? If so how many in various territories and regions? How many in metros/large cities?

Next to decide the terms of sale including credit terms and to whom various credit terms applicable(franchisees, direct and indirect dealers)

Sales Policy Deciding minimum infrastructure for channel

partners Intensity and frequency of coverage by sales

personnel I.e. weekly/monthly visits to specific retail outlets and distributors and CFAs

Warranty policy and ASS infrastructure to be decided.Training and supervision of Channel staff for various functions including logistics, motivation of retailers and handling quality issues are part of sales policy

Need to involve Marketing and QC personnel in formulation of relevant aspects of sales policy where their contribution is critical

Administrative Functions

First step is the selection of sales personnel. Various sources including media, placement agencies and educational/vocational training campuses have to be tapped

Employee contacts are useful for experienced personnel. Poaching seems attractive but is a short term approach

Short term performance initiatives

These are short term inducements to customers to buy more of the firm’s products

These include discount, coupon sales, lucky draws and contests

These require involvement of Marketing and finance groups to ensure best synergy of market enhancing and profit achievement objectives

Problem is that most of these only result in altering the timing of purchase and do not contribute to increased sales during the year

Further these contribute to brand dilution and ambiguity about real pricing points for the brand offering

Some Suggestions It is better to build brand credibility, offer real value

propositions to customers through relevant communication and strategic pricing

Associates should be supported through adequate infrastructure including signage and merchandising support

Finally associate remuneration should be competitive and permissive of realistic long term earning prospects

Information systems and good evaluation/incentive schemes with a view to build enduring partnerships should form the keystone of associate formation and development

Sales Organization Types

Several types based on competitive specialization of selling orgn.

Geographical orgn. most common where all firm’s products sold in each region -assumes demand patterns and associate capability uniformly spread

Product type sales organization e.g. pharma cos have medicines, equipment and supplies organized in separate groups

Sales Organization Types

Orgns. based on customer types viz. Industrial, Institutional and Consumer categorization. IBM, Xerox, Publishing cos

Activity function based including telemarketing, direct selling, and field sales- telecom firms follow this approach

Hybrid sales orgns. Large cos evolve into this form of orgn. over time

Recruitment,training and compensation of sales force Recruitment is process of locating, selecting

and employing suitable persons for the sales force

Matching to positions on the orgn chart and to job specs is essential

Objective criteria and sound methods of testing/evaluating ensure good recruitment

Over reliance on criteria such as quantum of prior experience a pitfall

Recruitment contd.

Reference check on previous employment experience and performance necessary

Clear statement of expectations from new employees on conduct and performance a must

Offer of emoluments and future prospects to be unambiguous(avoid vague “sky is the limit” promises-nobody believes them anyway)

Training of Sales force Training needs flowing from job specs is the

starting point. Understanding customer markets is critical

Detailed product knowledge mandatory for all types of offerings. For low tangibility differentiated offerings(e.g.personal care), knowledge of emotional satisfiers helps

Knowledge of the market place, competitors, channel associates and selling practices are focus areas

Inventory management, good logistics practices and receivables management should be vital inputs

Training of Sales Force Frequency, timing and manner of sales visits to

various channel associates is fundamental training input

Communication skills a priority with emphasis on receiving and rapport building(listening and empathising)

Training methods include formal class room formats, field training, seminars and interaction with senior/top mgmt

On the job training by superiors combining concept with practice should co-exist with general functional and behavioural training

Compensation and Motivation of Sales Force Sales compensation through salary,bonuses

and perquisites Significant part of compensation to be

performance based. Care to be taken to set realistic, real world targets.

Motivation of Sales Force

Motivation is the driving force based on positive feelings that produces goal directed action

It is necessary to reward goal directed action to ensure repetitive behaviour towards the goal/goals

The first step obviously is to establish the right goals

Right Sales Goals-the right approach Customer to be the focus always. Creation of

new customers and retention of existing customers

Primary and Secondary/final customers should merit equal focus. In fact primary customers are stakeholders too with their unique set of rightful expectations

If we short change the primary customer, we are unlikely to fully meet the expectations of the end customer

The Sales Goals The final goal has to be maximizing long term

profits through optimizing the volume/margin relationship

Channel inventory planning and control is critical Optimizing accounts receivables is another

critical responsibility and therefore major performance variable

Critical variable is retail sales which reflect consumer sales and therefore demand for company’s product/services

Sales goals Unit of sales needs to be defined properly. For

services like telecom, a unit of standard value (Rs. x representing a standard offering like monthly revenue)

For merchandising, and signage joint goals for sales and marketing should be set

Min. no of inventory turns for each channel partner should also be a sales goal. Recommended min 12 for every industry

Min revenue/profit per sq.ft of space should be a retail target

Regular and reliable reports should be a fundamental performance requirement

Rewarding Performance as well as Potential Rewarding current performance in financial and non

financial measures is intrinsic to motivation Need to spot & assess and develop potential

through training and award of challenging assignments is the greater part of motivation

Involve sales personnel in critical customer service areas like new product selection, pre manufacturing logistics. Establish contributions from sales personnel(feedback they carry from customers primary and secondary is input)

Role of mentors is very important. Attaining the position of a mentor could be the ultimate goal of outstanding performers. Nurturing mentorship throughout the sales organization is key to superior competitiveness

Channel Partner Management Need to select the right channel partners-new

to the industry,new to business is the best Clear set of expectations to be communicated at

selection(storage, inventory management, retailer servicing and support, timely and reliable information are key

Competitive remuneration with accompanying rigorous performance standards

Information about the sales responsibility domain, competitors and relevant socio,political, cultural impacters

Channel Partner Management Providing initial and ongoing training on product,

technologies, logistics practices and Info systems critical

Periodic visits to company facilities and interaction with company personnel over all relevant functions viz. marketing, manufacturing, Q.C. and Finance/accounts

Rewards and recognition through channel partner conferences an important motivating and enabling device

Most importantly fostering the partner identity in all channel partners

Company responsibility to channel members Channel members should not be loaded with excess inventory

which will cause resentment and lower their commitment Every channel member should be given appropriate mix of product-

fast moving, medium and slow moving. Non moving product should be removed by company at periodic

intervals. Discount schemed do not solve the problem Company should provide adequate primary and secondary display

to channel members and point of purchase material Good appraisal and reward system should be put in place to reward

the right partner performance. Non performers should be gradually weeded out. Long term orientation should be the key to assessing all channel partners

Frequent and caring interaction with channel partners and prompt addressal of grievances will help to build and sustain enduring partnerships as opposed to opportunistic alliances

Merchandising Merchandising is the process of increasing

visibility and appeal of products to increase saleability

It includes product packaging, placement, promotion and “special pricing”

One other form of merchandising is using the brand power of one organization to sell products of another.(sports personalities and entertainment cos lending their brand names to various products)

Merchandising Mostly merchandising focusses on presentation

of products including displays and special instore storage and packaging(gift bags, racks, trays), posters, danglers, special cards/brochures

It also features discount schemes along with the pricing and packaging features

Outdoor signage and on shop and in shop signage could also feature as part of merchandising

Planning and evaluation

Some aspects like signage should be considered as longer term and should feature as investment

Others including displays and special packaging and pricing initiatives would be shorter term and should be expensed

All expenditure should be justified in terms of real sales increase(not changing the timing of purchase by customer as in most festival sales)

Planning and Evaluation

Test marketing and post purchase surveys of customers should be the basis of evaluation

One tip is that all merchandising should keep the customer in mind. Need to avoid feeding the creative instincts or egos of marketing personnel in the company

Merchandising should be the joint responsibility of Marketing and Sales sub functions of the larger Marketing function

Summary

Defining larger Marketing process and Sales sub process

Areas of Sales responsibility, forecasting, sales organization, selection, training and retention issues, compensation, motivation of sales force

Sales strategy, types of selling viz direct selling, through channel members, mail order, e selling

Sales budgeting, how to develop the budget as effective planning and control tool

Summary

Essentials of space planning and inventory management

Channel members types and roles, selection of channel partners

Mutual expectations of firm and its chnl. Partners, training, rewards/recognition

Sales goals optimizing the long term volume/margin combination

Summary

Company responsibility to channel members including promotional and information systems support

Merchandising basics, role of company and channel partners

Thank You !Vishal Joshi

+91-9099089387Ahmedabad