Chapter 4

Organizing the Sales Effort

McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
 Learning Objectives

• Identify the purposes of sales organization.

• Understand the different horizontal
organizational structures of a sales force.
• Discuss key vertical structure issues in sales
organizations.
• Identify important issues in starting a new
sales force from the ground up.
 Organizational Structure

• An arrangement of activities involving a

group of people
»Organizing the activities and
management of the sales force
forms a major part of strategic
sales planning
 Purposes of Sales Organization

• Activities should be divided and arranged in

such a way the firm can benefit from the
specialization of labor.
• The organizational structures should provide
for stability and continuity in the firm’s
selling efforts.
• The structure should provide for the
coordination of activities assigned to
different persons in the sales force and
different departments in the firm.
Division and Specialization of Labor

• Increase productivity - each specialist can

concentrate efforts and become more
proficient at the assigned task
• Divide required selling activities to gain
maximum benefits of specialization within
the sales force
Division and Specialization of Labor

• Line organization – the chain of command

runs from the chief sales executive down
through levels of subordinates.

• Line and staff organization- Several sales

management activities are assigned to
separate staff specialists.
Organize for Stability and Continuity

• Organize activities without regard to the

talents or preferences of current
employees.
• People can be trained or recruited to fill
positions.
• The same activities will be carried out at
the same positions within the firm even if
designated individuals receive promotions
or leave.
 Coordination and Integration

• Sales force activities must be integrated

with customer needs.
• Selling activities must be coordinated
with other departments.
• Tasks must be integrated.
 Structure of the Sales Force

• To hire its won salespeople or use outside

agents
• When the decision is to use a company
sales force, alternative approaches include
– Geographic organization
– Organization by type of product
– Organization by type of customers
– Organization by selling function
 Outsourcing the Sales Force

Manufacturer’s Representatives
– intermediaries who sell part of the
output of their principals.
– Take neither ownership nor physical
possession of the goods they sell.
– Cover a specific territory and specialize
in a limited range of complementary
products.
 Outsourcing the Sales Force

Selling Agents
– Intermediaries who do not take title or
possession of the goods they sell
– Compensated by commissions from
their principals
– Have broad authority by their principals
to modify prices and terms of sale
– Actively shape the manufacturer’s
promotional and sales programs
 Considerations for Outsourcing the
Sales Force

• Economic Criteria
• Control
• Transactions costs
• Strategic Flexibility
 Common Bases for Structuring the
Sales Effort

• Geographic organization
• Product organization
• Organization by customer type or markets
• Organization by selling function
 Geographic Organization

• Simplest and most common method

• Individual salespeople assigned to
separate geographic territories
• Each salesperson is responsible for
performing all activities necessary to sell
all the products to all potential customers
in the territory
 Geographic Organization
Advantages Disadvantages
• Tends to achieve • It does not provide
lowest costs any benefits
– travel time and associated with the
expenses are specialization of labor.
minimized. – Each must sell all
– Sales administration the firm’s products
and overhead costs to all types of
are kept low. customers
• Confusion seldom – Perform all the
exists selling functions
 Product Organization
A separate sales force for each product (or
category) in the line.
Advantages Disadvantages
• Individual salespeople master • Duplication of
effective selling methods for
single or related products.
effort.
• Closer alignment of sales and
production possible.
• Sales management controls
the allocation of the selling
effort across the line.
Organizing by Customer Type or Markets

Organizing a sales force by customer type

is a natural extension of the marketing
concept and a strategy of market
segmentation.
Organizing by Customer Type or Markets
Advantages Disadvantages
• Better understanding • Possible higher
of customer needs selling and
• Increased familiarity administrative
with certain costs
businesses • Duplication of
• Increased control effort
over the allocation of • Confusion and
the selling effort frustration among
customers
 Organizing by Selling Function

• Different salespeople specialize in

performing different selling functions
– e.g. prospecting and developing new
accounts versus maintaining and
servicing existing customers.
 Role of Telemarketing

• Prospecting for and qualifying potential

new accounts
• Servicing existing accounts quickly when
unexpected problems arise
• Seeking repeat purchases from existing
accounts that cannot be covered efficiently
in person
• Gaining quicker communication of
newsworthy developments
 Team Selling

• Team selling integrates functional

specialists with customer relationship
specialists.
• A selling center brings together individuals
from around the organization
• A matrix organization employs direct-
reporting salespeople who support internal
consultants with specialized expertise
 Team Selling

• Benefits include:
– Questions answered faster
– People with similar interests speak
directly with one another
 Alternative Organizations

• Multi level selling –sales team consists of

personnel from various managerial levels
who call on their counterparts in the buying
organization
• Co-Marketing Alliances – develop marketing
and sales programs to sell integrated
systems directly to the ultimate customer
• Logistical Alliances and Computerized
Ordering- the development of computerized
information and ordering system
 Vertical Structure of Sales
Organizations

Key questions:
– How many levels of sales managers
should there be?
– How many people should each manager
supervise? (span of control)
 Vertical Sales Organization

• Generally, span of control should be

smaller and number of levels of
management should be larger when:
– The sales task is complex
– The profit impact of each salesperson’s
performance is high
– The salespeople in the organization are
well paid and professional
 Vertical Sales Organization

• Span of control should be smaller at

higher levels in the sales organization
because top-level managers should have
more time for analysis and decision
making,
 Building Blocks for New Sales Force
Startup
1. Start with a strategy
2. Appoint an expansion team
3. Leverage existing strengths
4. Go to the press
5. Avoid compensation snafus
6. Provide support

Sales managers assigned to create a new sales

force can employ “best practices”