4 – Sales Strategy Formulation

Introduction

The sales strategy is the game plan used to accomplish the intended results. It assists a corporation in moving from its current position to a desired position.

Sales tactics are used to attain the intended sales goals. The objectives may be numerous, necessitating an extensive and careful examination of other competitive organisations’ strategies and game plans. Sales strategy differs from marketing strategy in that marketing strategy entails identifying the target segment and directing the marketing mix to the target segment to achieve the objectives and compete, whereas sales strategy entails driving product sales. It generally consists of three steps:

1. Market Analysis Notes

2. Setting Objectives

3. Designing Sales Strategy

4.1 Market Analysis (Step I)

Market analysis, in this context, refers to macroenvironmental analysis. This comprises an examination of social, political, cultural, economic, and technological issues that impact the firm’s SWOT analysis.

Corporate missions or goals directly impact sales targets. The macroenvironmental study and competitive scenario aid in market analysis, which in turn helps determine the firm’s objectives.

Market analysis is a prerequisite to objective setting:

The company would require the following information:

1. The market’s present size and rate of expansion.

2. Consumer demands, attitudes, and purchase behaviour patterns

3. Examine your competitors. It covers a wide range of topics, including:

4. Current strategy used by other businesses. Some businesses differentiate their products through product features, packaging, and successful promotional technology differences.

5. Current performance, including a study of market share.

6. Their advantages and disadvantages.

7. Expectations of their future actions:

The role and scope of duties are tied to the competitive settings in which its products operate in each of the marketplaces in which it operates. When analysing the market, it is vital to determine the type of competition that exists. There are various types of competitions.

1. Pure Competition: Each vendor is too small to influence the current market price. This competition exists in identical and undifferentiated products. The sales effort is focused on ensuring adequate supplies. Because all sellers’ products are identical, purchasers are unconcerned about which merchants they purchase from. There are no artificial pricing limits, such as those imposed by the government or trade associations. All purchasers are always kept up to date on all sellers’ prices.

2. Monopolistic Competition: In this sort of competition, there are many vendors of a generic type of goods, but each seller’s brand is distinct. Almost any seller’s product brand, such as nail polish remover or pet food, may be distinguished. Sellers differentiate themselves in this market by using innovative packaging, unconventional delivery methods, price gimmicks, and a promotional strategy that combines advertising and personal selling.

3. Oligopolistic Competition: The following qualities characterise this type of competition:

a. The number of competitors is limited, but they are all identifiable and know each other.

b. Because one rival is significant, any change in his marketing approach impacts the competitors.

c. All of the competitors are acquainted with one another. In the United States, oligopoly exists in vehicles, computers, manufacturing, shoes, textiles, and other industries.

d. Successful businesses continue to thrive and grow, and vice versa.

e. It generates the most aggressive competition, and all 4r P’s must be closely monitored.

f. Personal selling plays a significant role.

4.2 Setting Sales Objectives (Step II)

The standards against which performance is judged are known as objectives. There are two kinds of objectives: qualitative objectives and quantitative objectives. Qualitative goals are long-term, whereas quantitative goals are short-term. The objectives are created with the company’s competitive status in mind.

A company selling high-value technical household products requires its salespeople to perform all sales functions and practical features. In this instance, the quality of the sales force will be different from that of those who just coordinate. The company’s marketing and sales policies generate long-term qualitative goals.

Quantitative targets, on the other hand, are concerned with operational outcomes. These, too, are affected by the competitive environment and business objectives and change over time. Goals are established in terms of:

1. Sales Volume

2. Sales cost

3. Accounts receivable

4. Inventory levels

5. Dealer support

6. Feedback input

4.3 Designing Sales Strategy (Step III)

The SWOT analysis is performed after the market analysis, which includes a study of environmental elements. The objectives are established, and the sales plan is developed by taking into account:

1. The type of sales force that is required.

2. The size of the required sales staff.

3. Territory layout.

4. Provide support and cooperation.

5. Cost-benefit analysis of transactions

All of the preceding subjects are being addressed independently.

4.4 Types of Sales Force Needed

The sales force’s role is what determines it. The quality of the sales force is defined as the quality of the sales staff’s contribution and the work burden placed on them. If commercials have done the pre-selling, then selling becomes simple. Some organisations expect their salespeople to handle the full task; for example, Instrumentation Ltd. in Kota handles everything from equipment commissioning and installation to after-sales servicing.

Product specialists and market specialists are the two sorts of specialists.

Product specialists work with highly technological products, such as marketing banking services, service packages such as farm finance, and short- and long-term financial services. Computers, cardiograms, and other complicated items

Market specialists are well-versed in many markets and may employ various sales methods in each. They must be familiar with more than one product line.

In a company’s sales staff, there may be a mix of product specialists and market specialists.

4.5 Basis for Territory Design

Geographical Basis: Salespeople are classified based on their geographical location.

Sales Potential Basis: The division of a company’s customer base based on the distribution of its sales potential.

Servicing Requirement Basis: A corporation divides its overall market based on the servicing needs of its current and future clients. Service entails the upkeep and expansion of an account.

Work Load Basis: This technique considers account potential and servicing, as well as additional workload caused by topographical locations and competitive dynamics.

4.6 Channel Support and Coordination

This is also an essential factor to consider while developing a sales plan. The sales organisation must disclose dealer cooperation programmes if indirect distribution is used. Support for stock management, local promotion through P.O.P. (point of purchase) displays, and local advertising will be provided. Feedback from the dealer is a vital source of assistance that should not be overlooked. For the effectiveness of channel support and coordination in dealer management programmes:

1. Adequate incentives for dealers are required;

2. Proper feedback and communication are essential, and

3. Measures must be taken to enhance dealer loyalty.

How actively or broadly you intend to sell the product will determine the coverage and support you require from the channel.

Intensive Distribution

This distribution is conducted at numerous outlets across a large area, giving the product as much exposure as possible. Hindustan Lever and Asian Paints Limited are responsible for this distribution.

Extensive Distribution

We cover a large area in terms of distribution but do not focus on all clients in the area. Extensive distribution covers a vast area, and commodities are distributed extensively.

Elective Distribution

Goods are distributed to specified outlets from here. These could be speciality stores or prominent stores in a specific location. Designer clothing, cosmetics, TV, electrical equipment, and so on are distributed through multiple outlets, but not all.

Exclusive Distribution

As with autos, only one dealer does this and also offers after-sales service. This is done to cultivate an exclusive image, which necessitates more motivation, coordination, and operational efficiency. These unique agents are hand-picked with considerable care.

Vertical  Integration

It is the process of demanding management membership permissions at multiple distribution channel levels. Absolute channel control comes at a high cost. A business must strike a balance between the demand for market control, coordination, and distribution costs, as well as specialization. A balance should be struck between channel control and its associated costs.

4.7 Transaction Cost Analysis

The cost of doing business is referred to as the transaction cost. In this case, the rough channels are compared to the costs of enterprises’ distribution systems. The transaction cost covers the costs of exploring, bargaining, and keeping the distribution system in good working order.

As we approach exclusive distribution, the services expected from middlemen become more defined.

1. Delineation of the middleman’s region (exclusive domains) and freedom in allowing him to grow the territory.

2. Inventory holding (to avoid stock-outs): Agreements for inventory holding might be arranged. A price guarantee is provided in the event of fluctuating pricing.

3. Installation and after-sales service: After-sales service and training are also required.

4. Price maintenance when selling to the final consumer: Dealers must keep prices stable.

5. Promotional services include sales displays, local advertising, catalogues, and sales promotion. Exclusive distribution can more successfully accomplish this.

6. Exclusive dealing (no competitive brands): Dealers should not carry competitive brands when dealing with competitive products.

4.8 Determining the Size of the Sales Force

There are three techniques for calculating the size of a sales force:

1. Incremental Method

2. Sales Potential Method

3. Work Load Method.

4.8.1 Incremental Method

It states that we can expand the sales force until incremental revenue outweighs incremental costs.

Assumptions: When more salespeople are hired, profits will increase.

For example, if we already have ten salespeople, adding one more salesperson changes the sales volume, cost of goods (60% of sales), and gross margin (40% of sales), as shown in the table below.

No. of Salesmen	Sales Volume (Rupees)	Cost of Goods Sold (60%)	Gross Margin (40%)
11	250,000	150,000	100,000
12	200,000	120,000	80,000
13	150,000	90,000	60,000
14	100,000	60,000	40,000

Assuming all salesmen receive a salary and travel expenses totalling 20,000 + 15,000 and a 6% commission on sales, the net profit exhibits variation according to the subsequent table.

No. of Salesmen	Gross Margin	Salary + Travel + Commission	Net Profit
11	100,000	35,000 + 15,000	50,000
12	80,000	35,000 + 12,000	33,000
13	60,000	35,000 + 9,000	16,000
14	40,000	35,000 + 6,000	-1,000

Observing the results, it becomes evident that including the 14th salesman is impractical due to a net loss of 1000 in the sales force.

Limitations of the Incremental Method

This methodology overlooks competitive reactions and the long-term investment in personal selling efforts.

4.8.2 Method of Sales Potential

In the context of management decisions, the focus is on evaluating the potential output of an average salesperson with average performance. The objective is to determine the expected sales generated by an individual salesperson. The process involves calculating the forecasted sales volume(s), dividing the total sales volumes by the productivity of one salesperson, and obtaining the required number of salespersons (N) denoted as S/P. This method also accommodates the turnover rate of salespersons.

The formula for this approach is expressed as:

N = S/P​

Where:

• $N$ Is the number of salespersons.
• $S$ Is the forecasted sales volume.
• $P$ Is the estimated sales productivity of one person.

If S = 100,000 and P = 10,000, then N = S / P = 10

Modified Formula
If the turnover rate is 10%, then there is a modified formula for the number of salespeople.
N = S / P + T (S / P) = (S / P) (1+T)
For the above set of values,
N = (100,000/10,000) (1 + 10/100) = 10 + 1 = 11 salesperson

4.8.3 Work Load Method

4.9 Determining the Kind of Sales Personnel

This option necessitates an evaluation of qualitative personal selling objectives—what contributions should be expected from persons performing selling tasks toward the company’s long-term overall objectives? What should these people’s roles and obligations be? How should they be evaluated for the job? When deciding on the type of sales employees needed, management must consider these questions.

Each company deals with a distinct set of marketing factors, such as the strengths and weaknesses of its products (what it sells), the motivations and purchasing habits of its customers and prospects (to whom it sells), its pricing strategy, and the competitive setting—the relative strengths and weaknesses of competitors. Furthermore, various selling positions necessitate varying selling and non-selling abilities, training, technical skills, and other knowledge.

As a result, while deciding the type of sales employees to hire, we must first grasp what is expected of them: job objectives, roles and responsibilities, and performance measures. Knowing the salesperson’s job entails knowing the specific task for the specific salesperson. Knowing the specific work aids managers in avoiding “placing square pegs in round holes.” It aids in matching the person to the work and the job to the person.