SALES ENVIRONMENT ANALYSIS
In this chapter we analyze the major forces that affect selling and sales management.
We then consider specific sales settings such as sales channels, industrial/ commercial/public authority, retail and services selling. Related activities that support selling activities, namely sales promotions, exhibitions and public relations, are also examined.
ENVIRONMENTAL AND MANAGERIAL FORCES THAT IMPACT ON SALES
A number of major environmental (behavioral and technological) and managerial forces impact on how selling and sales management are and will be carried out.
As customers adjust to a changing environment, so sales have to adapt to a variety of influences:
(a) Rising consumer and organizational buyer expectations;
(b) Customer avoidance of buyer–seller negotiations;
(c) Expanding power of major buyers;
(d) Globalization of markets;
(e) Fragmentation of markets.
Rising consumer/organizational buyer expectations and fulfillment of higher order needs
As consumers experience higher standards of product quality and service, so their expectations are fuelled to expect even higher levels in the future. This process may be hastened by experiences abroad and new entrants to industries (possibly from abroad) that set new standards of excellence.
Technological advances have created new higher customer expectations. The existence of the internet means that customers expect salespeople calling on them for the first time (and after) to be familiar with their firms, its products and personnel
Customer avoidance of buyer–seller negotiations
Studies have shown that the purchase of a car is the most anxiety-provoking and least satisfying experience in retail buying. Some car salespeople are trained in the art of negotiation supported by high pressure sales tactics. Consequently, customers have taken to viewing the purchase as an ordeal to be tolerated rather than a pleasurable occasion to be savored.
Expanding power of major buyers
The growing dominance of major players in many sectors (notably retailing) is having a profound influence on selling and sales management. Their enormous purchasing power means that they are able to demand and get special services, including special customer status (key account management), just-in-time inventory control, category management and joint funding of promotions.
Globalization of markets
As domestic markets saturate, companies are expanding abroad to achieve sales and profit growth. The global challenge includes a correct balance between expatriate and host country sales personnel, adapting to different cultures, lifestyles and languages, competing against world-class brands and building global relationships with customers based in many countries.
As companies expand into new overseas markets, there is a need to understand different cultural expectations and to give thought to various cultural issues. Ethical differences are also important what is ethical in one country may be unethical in another.
Fragmentation of markets
Driven by differences in income levels, lifestyles, personalities, experiences and race, markets are fragmenting to form market segments. This means that markets are likely to become smaller with an increasing range of brands marketed to cater for the diverse needs (both functional and psychological) of customers. Marketing and sales managers need to be adept at identifying changes in consumer tastes and developing strategies that satisfy an increasingly varied and multicultural society.
Three major forces are at play:
- Sales force automation;
- Virtual sales offices;
- Electronic sales channels.
Sales force automation includes laptop and palmtop computers, mobile telephones, fax, email and more advanced sales software which aid such tasks as journey and account planning, and recruitment, selection and evaluation of sales personnel. In addition, electronic data interchange (EDI) provides computer links between manufacturers and resellers (retailers, wholesalers and distributors), allowing direct exchange of information.
Improved technology has encouraged the creation of virtual offices, allowing sales personnel to keep in contact with head office, customers and co-workers. The virtual office can be home or even a car. This means cost and time savings and enhanced job satisfaction for salespeople who are spared time waiting in traffic that is a feature of the job.
The fastest growing electronic sales channel is undoubtedly the internet. Its impact is not simply to reduce the size of sales forces but also to change the focus of the sales team. The internet has also raised customer expectations regarding salesperson knowledge about their company and responsiveness.
Managers can respond to the changes in the environment by developing new strategies and tactics to enhance sales effectiveness, including:
(a) Employing direct marketing techniques;
(b) Improving co-operation between sales and marketing;
(c) Encouraging salespeople to attend training programmes and acquire professional qualifications.
Distribution channels involve two separate, yet closely connected, activities: logistics, or physical distribution management (PDM), and channels of distribution.
Logistics or physical distribution management (PDM)
The terms logistics and PDM are interchangeable, although some writers infer that logistics is more concerned with strategic issues whereas PDM relates to tactics. Basically, logistics means the effective and economic planning, implementation and control of the physical flow of materials in their unprocessed state through to finished goods from the point of origin to delivery to the end-consumer.
Channels of distribution
Management should constantly reappraise channels of distribution to make cost savings.
Marketing channels are determined by company policy and this determines how the sales force should be organized.
A sales channel is the route that goods take through the selling process from supplier to customer. Sometimes the channel is direct, especially where goods sold are incorporated into a manufacturing process. Final goods might then be sold through a different channel. Selecting/reappraising sales channels
When selecting or reappraising channels, the company must take into consideration:
- The market;
- channel costs;
- The product;
- Profit potential;
- channel structure;
- Product life-cycle; and
- Non-marketing factors.
This must be analyzed to ensure that as many potential consumers as possible will have an opportunity to purchase the product or service. Channel compatibility with similar products in the marketplace is important. Consumers tend to be conservative and any move from the accepted norm can be viewed with suspicion. Unless there are sound reasons for so doing, it does not make sense to go outside the established channel.
Generally, short channels are the costliest. A company selling direct may achieve large market coverage, but in addition to increased investment in the sales force, the firm also incurs greater transportation and warehousing costs. This is balanced against the fact that there will be a greater profit margin, by virtue of the fact that distributive intermediaries are obviated and their margins will not have to be met. In addition to such financial criteria, short channels have an advantage of being nearer to end-users, which means the company is in a better position to anticipate and meet their needs.
There has been a trend in recent years for manufacturers to shorten their channels to control more effectively distribution of their products, particularly where advertising has been used to pre-sell the goods to consumers.
Normally, low-cost, low-technology items are better suited to longer channels. More complex items, often requiring much after-sales service, tend to be sold through short channels, which is why most industrial products are sold direct from the producer to user. The width of the product line is important, in that a wide product line may make it worthwhile for the manufacturer to market direct because the salesperson has a larger product portfolio with which to interest the customer, which makes for more profit-earning potential.
A narrow product line is more suited to a longer channel because along the distribution chain it can be combined with complementary products of other manufacturers, resulting in a wider range of items with which to interest the customer. In this case, distributive intermediaries and not manufacturers are performing the final selling function. An example here is a manufacturer of bathroom fittings who sells through builders’ merchants. Builders’ merchants then sell these fittings to builders alongside other materials they require.
There comes a point when the costs of obtaining more sales through a channel outweigh revenue and profits to be gained from increased sales. For instance, a manufacturer of an exclusive perfume would not distribute through supermarkets or advertise during peak-time television viewing. If the company did so, then sales would no doubt increase, but the costs involved in achieving those sales would make it unprofitable. It is an accounting problem and a balance must be struck between channel expense, profit and gross margins.
A manufacturer using short channels is more likely to have high gross margins, but equally higher channel expenses. A manufacturer using longer channels will have relatively lower gross margins, coupled with lower channel expenses.
To some extent a manufacturer’s choice of distributive intermediaries is governed by the members in that channel. If members of the channel are strong (by virtue of, say, their size), then it will be difficult for a manufacturer to go outside the established channel.
In some cases it may be difficult to gain entry to the channel unless the product is differentiated by way of uniqueness or lower price from those products already established in the channel. An example is the potential difficulty that a new detergent manufacturer would have in attempting to sell products through larger supermarkets.
The manufacturer would have to convince members of the channel that the detergent was in some way better than those already on the market, or offer advantageous prices and terms. In addition, detergent is mainly marketed using a ‘pull’ strategy that relies on consumer advertising to create brand loyalty and pre-sell the product to end-customers. A new manufacturer would have to spend a lot on mass advertising to create brand loyalty for the product, or attempt to ‘push’ the product through the channel by providing trade incentives, with probably a lower end price than competitive products coupled with larger profit margins for retailers. It can be seen that it would be a daunting task for a new detergent manufacturer to enter the market in a big way without large cash resources at its disposal.
Consideration must be given to how far the product is along the product life-cycle. A new concept or product just entering the life-cycle might need intensive distribution to start with to launch it on the market. As it becomes established it may be that after-sales service criteria become important, leading to a move to selective distribution, with only those dealers that are able to offer the necessary standard of after-sales service being allowed to sell the product. It would then be the case that only a select few distributors are needed in the early stages of the life-cycle.
Industrial/commercial/public authority selling
These categories are grouped together as the sales approach is similar and behavioral patterns exhibited by each conform to organizational behavior. A number of characteristics in these types of market distinguish them from consumer markets.
Institutions and businesses purchase goods either for use in their own organizations or for use in the manufacture of other goods. There are few potential purchasers, each making high-value purchases.
Industrial markets are often highly concentrated, an example being the UK textile industry which is centered in Lancashire and Yorkshire. An industrial salesperson who sells into one industry may deal with only a few customers in a restricted geographical area.
Complex purchasing decisions
Buying decisions often involve a large number of people, particularly in the case of a public authority where a purchasing committee may be involved in a major purchase.
Many industrial buying decisions involve more than the buyer; in some cases the technical specifier, production personnel and finance personnel are involved and this is where the decision-making unit can be seen in practice.
This can prolong negotiation and decision-making processes. Salespeople have to work and communicate with people in a variety of positions and tailor their selling approaches to satisfy individual needs. For example, specifiers need to be convinced of the technical merits of the product, production people want to be assured of guaranteed delivery and buyers will be looking for value for money.
For technically complicated products, selling is sometimes performed by a sale team, with each member working with their opposite number in the buying team, e.g. a sales engineer works with engineers in the buying company.
A life insurance policy salesperson might make a sale and never meet the customer again. The nature of selling in industrial, commercial and public authority settings is that long-term relationships are established and both parties become dependent upon each other, one for reliable supplies and the other for regular custom.
There is a tendency to build up strong personal relationships over a long time and high pressure sales techniques could be counter-productive. A more considered approach involving salespeople identifying needs of individual customers and selling the benefits of the product to satisfy those needs are more likely to be successful.
The ability of salespeople to deal with complaints and provide a reliable after-sale service is important. It is suggested that the effective salesperson must understand how to develop and sustain relationships with key customer groups, along the lines of relationship selling.
This is an arrangement whereby company A purchases certain commodities manufactured by company B and vice versa. Such arrangements tend to be made at senior management level and are often entered into when there is a financial link between the companies, such as those within the same group (referred to as intergroup trading) or between companies whose directors simply want to formalize an arrangement to purchase as much of each other’s products as possible.
Such arrangements can be frustrating for salespeople and buyers alike, as they deter free competition. Buyers do not like to be told where they must purchase from, just as salespeople do not like having a large part of a potential market permanently excluded because of a reciprocal trading arrangement.
SELLING AND MANAGING KEY/ MAJOR ACCOUNTS
Major/Key account management
Key account management is a strategy used by suppliers to target and serve high-potential customers with complex needs by providing them with special treatment in the areas of marketing, administration and service. In order to receive key account status, a customer must have high sales potential. A second characteristic is that of complex buying behavior; for example, large decision making units with many choice criteria are often found in dispersed geographical locations. The decision-making unit may be located in different functional areas and varying operating units. Third, key account status is more likely to be given to customers willing to enter into a long-term alliance or partnership.
Such relationships offer buyers many benefits including reliability of supply, risk reduction, easier problem-solving, better communications and high levels of service. Key accounts that are geographically widespread are often called national accounts.
Key account management has three features. First, key account management involves special treatment of major customers that is not offered to other accounts.
This may involve preferential treatment in the areas of pricing, products, services, distribution and information sharing. This may take the form of special pricing, customization of products, provision of special services, customization of services, joint co-ordination of distribution and workflow, information sharing and joint development of business processes and new products. Second, it is associated with dedicated key account managers who typically serve several key accounts.
They may be placed in the suppliers’ headquarters, in the local sales organization of the key account’s country, or sometimes on the premises of the key account.
Third, key account management requires a multifunctional effort involving, in addition to sales, such groups as engineering, marketing, finance, information technology, research and development and logistics.
The six most critical conditions needed to ensure the success of key account management are as follows:
- Integration of the key account programme into the company’s overall sales effort;
- Senior management understands of, and support for, the key account unit’s role;
- Clear and practical lines of communication between outlying sales and service units;
- Establishment of objectives and missions;
- Compatible working relationships between sales management and field salespeople;
- Clear definition and identification of customers to be designated for key account status.
THE TASKS AND SKILLS OF KEY ACCOUNT MANAGEMENT
|1. Develop long-term relationships
|2. Engage in direct contact with key customers
|3. Maintain key account records and background information
|4.Identify selling opportunities and sales potential of existing key accounts
|5. Monitor competitive developments affecting key accounts
|Focus on specific objectives
|6. Report results to upper management
|Diagnosing customer problems
|7. Monitor and/or control key account contracts
|8. Make high-level presentations to key accounts
|Generating visibility, reputation
|9. Co-ordinate and expedite service to key accounts
|10. Co-ordinate communications among company units servicing key accounts
|Working in a team
Building relationships with key accounts
Five ways of building strong customer relationships will now be described.
- Personal trust
The objective is build confidence and reassurance.
- Ensure promises are kept;
- Reply swiftly to queries, problems and complaints;
- Establish high (but not intrusive) frequency of contact with key account;
- Arrange factory/site visits;
- Engage in social activities with customer;
- Give advance warning of problems.
- Technical support
The objective is to provide know-how and improve the productivity of the key account.
- Research and development co-operation;
- Before- and after-sales service;
- Provide training;
- Dual selling (supplier helps key account to sell).
- Resource support
The objective is to reduce the key account’s financial burden.
- Provide credit facilities;
- Create low interest loans;
- Engage in co-operative promotions to share costs;
- Engage in counter-trade (accept payment by means of goods or services rather than cash).
- Service levels
The objective is to improve the quality of service provision.
- Reliable delivery;
- Fast/just-in-time delivery;
- Install computerized reorder systems;
- Give fast accurate quotes;
- Defect reduction (right first time).
- Risk reduction
The objective is to lower uncertainty in the customer’s mind regarding the supplier and the products/services provided.
- Free demonstrations;
- Free/low-cost trial period;
- Product guarantees;
- Delivery guarantees;
- Preventative maintenance contracts;
- Proactive follow-ups;
- Reference selling.
Criteria for selecting key accounts
Traditionally the key criterion for designating particular customers as ‘key accounts’ was on the basis of the large quantity of output sold to a customer on the basis that an organization bought a considerable amount of product from a supplier, it deserved special treatment because of the high profit contribution it made, the supplier was motivated to provide the extra resources because the loss of that customer would have a significant impact on its own sales and profits. As experience with key accounts has grown, the range of criteria used to select key accounts has grown, based on the strategic or long-term importance of specific customers to a supplier. These include:
- Accounts that have growth prospects through their ability to build sales and market share in their existing markets.
- Accounts with growth prospects through their position as major players in small or medium-sized but expanding markets.
- Customers that are willing to be partners in innovation by allowing joint new product development with a supplier and/or will allow a supplier to test new products in their production processes.
- Customers that are early adopters of new products and so aid the diffusion of such products in the marketplace.
- Highly prestigious accounts that improve the image and reputation of the supplier and can be used in reference selling by the sales force.
- Accounts that are important to and currently served by competitors that the supplier has decided to attack.
- Accounts that provide a high contribution to the supplier’s profits.