Personal Selling and Sales Management PDF

9 - 507- 039 R E V : D E C E MB E R 1, 2 0 0 6 MODULE NOTE...

9 - 507- 039 R E V : D E C E MB E R 1, 2 0 0 6 MODULE NOTE Personal Selling and Sales Management Salespeople represent a large part of labor in most economies. In its latest report, 1 the U. S. Bureau of Labor Statistics estimates that nearly fourteen million people are employed in sales and sales- related occupations and that these people earn over $450 billion in wages. Moreover, salespeople represent a major investment for many companies, accounting for as much as 40% of their costs. A company’s fortune often rises and falls on the productivity of its salespeople. The goal of this module is to develop a better understanding of what salespeople do, what motivates them to succeed, and how to effectively manage their efforts. The Salesperson - A Boundary-Spanning Role Salespeople work on the boundary between a company and its customers. To the company, the salesperson is the voice of the customer. To the customer, the salesperson is the physical embodiment of the company. This boundary-spanning role creates unique tension for salespeople because they are constantly forced to reconcile the competing interests of both the buying and the selling organizations. Figure A: The Salesperson’s Boundary-Spanning Role Company Salesperson Customer Source: Casewriter. 1 These data come from the May 2005 National Occupational Employment and Wage Estimates report, which was accessed online at http://www.bls.gov/oes/current/oes_nat.htm#b41-0000 on 1 December 2006. See occupation code 41-0000. This note was prepared by Professor Thomas Steenburgh for the sole purpose of aiding students in the Marketing course. Copyright © 2006 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School. 507-039 Module Note—Personal Selling and Sales Management Types of Salespeople During cocktail hour discussions, sales managers still engage in the old debate of whether great salespeople are born or whether they are made. It is a question, of course, without a single answer. Some people are better suited to selling than others (in fact, some salespeople are better suited to certain types of sales jobs than others) and yet most people can sell more effectively by learning to follow a process. Whether an individual will make a good salesperson does somewhat depend on their inherent personality traits. In a classic article, Mayer and Greenberg (1964) suggest that salespeople must have two basic qualities: empathy and ego drive. Empathy allows salespeople to treat customers’ problems as their own, and ego drive enables salespeople to persist even after experiencing failure. Whether an individual is right for a given organization depends on the fit between the individual’s skills and tasks that need to be accomplished. Narayandas and Weinstein (2005) examine the differences between salespeople who thrive in ”hunter” and salespeople who thrive in “farmer” types of positions.2 Hunters Hunter salespeople are persuasive, have a strong sense of urgency, and are adept at bouncing back from rejection. They are better suited to the following types of functions: Sourcing and qualifying new leads Obtaining appointments Delivering presentations that address customers’ concerns Negotiating and securing new business Farmers Farmer salespeople are empathetic, consistent, and adept at developing relationships. They are better suited to: Establishing and maintaining long-term relationships Providing expert advice Networking within customers to find new leads Negotiating and securing new business with existing customers This type of categorization can be used to determine the likelihood of success in a job, to identify skill gaps, and to create long-term developmental plans. It should be thought of more as a snapshot in time than as a picture of unchanging personality traits. The Sales Process Effective salespeople become adept in understanding their customers’ needs and identifying their problems. This can be an elusive skill to master even for seasoned salespeople. For example, when salespeople become successful selling to an existing set of customers, they may begin to assume that 2 McMurry (1961) and Kotler and Keller (2006) provide even finer categorizations along the spectrum of positions between these two extremes. 2 Module Note—Personal Selling and Sales Management 507-039 they understand the problems faced by every customer and start to overlook issues that concern new prospects. Similarly, when a new product is launched, salespeople may become so immersed in learning about its features that they forget to think about how these features might be used to solve customers’ problems. Effective selling requires salespeople to understand their customers’ needs, to help customers see the bigger importance of these needs, and only then to show customers how their products might meet them. Accomplishing this takes a great deal of empathy as well as an ability to solve problems. Understanding Customers’ Needs The first step in selling is to understand the customers’ needs. While this can be done only by going into the field, it is useful to develop a sense of what a customer might be looking for before sales calls are made. Clarifying the distinction between product features and customer benefits can help salespeople anticipate the issues that customers experience and the solutions that they may be able to offer. (See Figure B.) Turning Product Features into Customer Benefits This mental exercise helps salespeople anticipate their customers’ problems. Product features are turned into customer benefits by asking the questions, ”Why do they care?” or “Why is it important?” These questions may need to be asked several times before the ultimate customer benefit is found. For example, DeWalt makes its drills in an industrial yellow color (a product feature.) Why do tradesmen care? Tradesmen need to signal that they possess unique skills, and their choice of power tools helps convey this image. DeWalt’s industrial yellow color signals high quality. Why is this important? Tradesmen rely on other tradesmen to get new jobs (a customer benefit), so they need to maintain a professional image. Why else is it important? Customers are willing to pay more for work that they cannot do themselves (a customer benefit), so tradesmen need to signal to their customers that their work cannot be done by amateurs. Whether these truly are customer benefits depends on whether a tradesman sees them as such, which cannot be determined without talking to a real tradesman. Nevertheless, the mental exercise of turning product features into customer benefits helps put the salesperson in the customer’s shoes before a call is made. While it may seem obvious that time should be spent trying to anticipate customers’ needs, many firms give training only on product features, not on customer benefits. This may help explain why some salespeople spend a disproportionate amount of time learning about the product at the expense of anticipating the customers’ reasons to buy. Turning Customer Benefits into Product Features The opposite exercise helps salespeople determine the types of solutions that can be offered and develop lines of questions to be pursued with customers. Customer benefits are turned into product features by asking the question, ‘How can I do it?’ Salespeople often are able to identify some customer benefits that cannot be met, which helps them determine the types of probing questions that should not be asked as well as those that should be. It also helps them identify those customers who are least likely to buy. This exercise is particularly useful when salespeople have some control over the product offering, such as in professional service industries or when selling to major accounts. It also can be useful as a research and development tool, when salespeople work with engineers to develop new products. 3 507-039 Module Note—Personal Selling and Sales Management Figure B: Understanding Customers’ Needs Customer Benefits “Why do they care?” “How can I do it?” Product Features Source: Casewriter. Identifying and Building Needs Having spent some time trying to anticipate needs, the salesperson is ready to develop lines of questions to be pursued with prospects. Many of the popular books on selling, such as SPIN Selling (Rackham, 1988) and Secrets of Question Based Selling (Freese, 2003), focus on determining the right questions to ask. Ideally, the salesperson begins a conversation by asking questions that reveal the prospect’s needs. The goal is to identify what issues the prospect faces and whether or not the salesperson has something to offer. If something can be offered, the salesperson proceeds by helping the prospect articulate compelling reasons to buy. The salesperson’s questions should help the prospect clarify how the product would help them attain higher-level benefits. A critical component of this phase is that the prospect feels that they participated in defining the benefits that would be attained or, better still, that they defined them on their own. This leads to stronger commitment and a sense of urgency to complete the purchase. It also increases the prospect’s willingness to “sell” the product to others in the decision-making unit (who, depending on the type of sale, may be upper-level managers or even the prospect’s spouse.) To be successful, salespeople should ask questions about needs they can meet and should try to avoid asking questions about needs they cannot. A need the prospect believes is important, but the salesperson cannot meet should not be dismissed, especially if a competitor can meet it. Rather, the salesperson should look for ways to refocus the discussion on problems that can be solved. Transaction Selling When selling products in a transaction-oriented environment, say a retail store, the salesperson has limited time to make a pitch to a customer. The salesperson needs to make quick judgments as to whether the customer is really interested in buying, why they are interested in buying, whether the salesperson has a product that can satisfy those needs, and how focused the customer is on price. 4 Module Note—Personal Selling and Sales Management 507-039 ABC, which stands for “always be closing”, is a common mantra because customers are unlikely to return once they leave the store. While product features often need little explanation in this environment, salespeople still need to be conscious of what matters to the customer. Only a few of the product features will be discussed, and objections, either to the product or to price, need to be anticipated and overcome quickly. Learning to handle customer objections is an especially important skill to master in this environment. Major Accounts Selling Selling into major accounts radically differs from transaction selling. Sales take place over months or years as opposed to over minutes, many people in the buying organization are involved, and the buying organization is spending larger sums of money. It often takes years for salespeople to effectively master the skills needed to sell in this environment, and processes need to be established to help make them successful. In a classic HBR article, Shapiro and Posner (1976) describe a sales process for major accounts that helps salespeople manage complex selling tasks. They discuss the following eight steps: Open the Selling Process In the opening stage, a salesperson’s objective is to gain enough information from an initial contact to determine the person or set of people to meet in the prospective buying organization. The best openings are often provided by third-party sources because these introductions help the salesperson gain credibility with the prospect. Given this, professional service firms commonly use one another as referral sources to obtain new clients. Qualify the Prospect The next stage is to “separate the suspects from the prospects”. To avoid spending time selling to prospects that have no intention of buying, the salesperson should ask: Does the prospective buyer really have a need for my product? Do the top managers recognize that need? If they don’t, is it likely that I can educate them? Can I justify my product as a response to that need? Can I identify influential buyers and others who may affect the decision to buy? Develop the Sales Strategy Once the salesperson believes a sale is possible, she needs to develop a plan to direct her efforts. Shapiro and Posner suggest developing a “Strategic Sales Opportunity Profile” to map out the entire sales strategy. On one form, the salesperson lists all of the people that have been contacted, the information obtained, the required follow-up actions, and the results of contact. The information will vary widely from the practical (certain individuals need detailed cost estimates) to the organizational (they will only negotiate with the sellers organizational counterpart) to the personal (they cannot make decisions unless one of their associate confirms it.) In essence, the salesperson uses the opportunity profile to learn about the prospect’s decision-making process. Some of the right questions include: Will the person that I am going to call on make the actual decision? How does he fit into the organization? Is his background technical? Managerial? Although decisions to buy big-ticket items are generally made at higher levels of the customer’s organization, salespeople often feel more comfortable selling to lower levels of management. Selling only to these managers has two detrimental effects: (1) some of the strength of the sales presentation is lost in transmission from the lower levels to the upper levels of management (2) an opportunity to develop relationships with top managers is lost, and the salesperson is left guessing as to how they perceive the situation. Organize the Justification Once the salesperson has determined whom to contact, it is time to assist the prospect in cost justifying the proposal. While the salesperson needs to become completely conversant in the prospect’s operations, she is more likely to be successful if she can determine the 5 507-039 Module Note—Personal Selling and Sales Management few important variables that affect the sale. Once these variables have been determined, top executives can help the salesperson cost justify the proposal by answering questions like, “Do you think that our service can increase sales by 10% over a two year period?” Numbers are useful only if the prospect believes them to be feasible. Immediately after these data have been gathered is the right time to sell. Make the Presentation The proposal to a prospective customer is often made in the form of a formal presentation. The salesperson’s goal for this meeting is to get the right set of decision makers in the room in order to ask for the business. No new information should be presented at this meeting. Rather, the presentation should reinforce the agreed-upon solutions, cost justifications, and implementation commitments. Good presentations will include a management summary, project scope, recommended solution, description of unique advantages, financial analysis and cost justification, implementation schedule, and contract with terms and conditions. Personal involvement of the selling organization’s senior managers is often appropriate at this meeting so that any additional commitments, if necessary, can be made on the spot. Whereas handling objections well matters more in transaction selling, preventing objections from arising matters more in major accounts selling. Coordinate Resources and Personnel During the entire sales process, the salesperson is responsible for managing the resources of her company. This may require working with other organizations within her firm to meet the prospect’s needs. For example, she may have to work with design to get a special product configuration, manufacturing to ensure that enough production capacity exists, or finance to obtain special payment terms. A by-product of this interaction is that new lines of communication are established between the buyer and seller. Close the Sale Success is attained only when the sale has been closed and the customer signs the contract. When selling big-ticket items, this may occur anywhere from six months to three years after the process was started. Therefore, it is important for the salesperson to end each call by reinforcing with the customer the agreements that have been reached up to that step in the sales cycle. By continually asking and getting answers to questions such as, “If we could deliver a system that could deliver a 15% ROI per annum, would you buy?” the salesperson knows well before the process is over if the business has been won. Nurture the Account Relationship The salesperson should continue to be a liaison between the buying and selling organizations long after the sale has been closed. By making sure the product delivers the anticipated returns, the salesperson ensures profitability for the customer and puts her company in the best position to win add-on business. Post-sale service not only reinforces the customer’s confidence in the seller, but it also keeps competition out because the customer’s people are busy working with the seller. Sales Management Having spent some time understanding what salespeople do for a firm and what motivates them to succeed, let’s now understand how to effectively manage their efforts. We’ll discuss aligning the salesperson’s objectives with the strategic goals of the firm, organizing the sales force, and managing salespeople. 6 Module Note—Personal Selling and Sales Management 507-039 Aligning Objectives Since salespeople need to treat their customers’ problems as if they were their own, it is easy for them to lose sight of their own company’s strategic goals. This makes it especially important for the company to clearly communicate what needs to be accomplished and to align, as best as it can, its salespeople’s objectives with its own broader goals. The first step in aligning objectives is for the company to define what it wants to accomplish. Broad strategic questions that need to be answered include: Should the company pursue opportunities with new customers or deepen relationships with existing ones? Is the company willing to invest in customer satisfaction at the expense of losing profit? Does a new product deserve special attention because it is expected to play a strategic role in the firm’s portfolio in the future? After defining its primary strategic goals, the company turns to defining the role that individual salespeople should play in attaining them. Management must decide what tasks the salespeople should perform, what authority should be delegated, and what information should be shared. These decisions shape how salespeople behave with customers. More specific objectives need to be established when the individuals’ goals diverge from the firm’s and when salespeople do not have the skill to make good decisions on their own. Defining the Sales Organization Marketing has been described as getting the right product in front of the right customer at the right time and at the right price. Whether or not this happens often depends on how well the sales force is organized. As with other channel decisions, companies need to consider five factors when making these decisions: capability, control, coverage, cost, and conflict. Capability The starting point is to determine whether the company has the ability to create a sales force with the necessary skills to meet the customers’ needs. The company should ask “What do we need the salespeople to do?” and “Would the salespeople under consideration be capable of completing these tasks?” The company should then consider the tradeoffs of serving customers in other ways, such as through sales agents or value-added resellers. Control Direct sales forces provide companies with more control over how they interact with customers. Selling directly allows companies to: Keep their customer lists private Deliver consistent messages and receive unfiltered feedback Ensure loyalty and product expertise Set sales targets for individual salespeople. In contrast, relationships with channels partners must be kept at arm’s length and individual sales targets cannot be set. Sales targets serve as both motivational and forecasting tools. Coverage Companies commonly use outside agents to reach a greater part of the market. Outside agents can provide access to: New types of selling skills New types of customers 7 507-039 Module Note—Personal Selling and Sales Management Broader geographic regions Cost The cost of serving customers is the next consideration. Not only does greater control and greater coverage result in greater cost, but the risks associated with choosing a direct or an indirect sales force need to be considered. The salary of a direct salesperson may be large and fixed, but the variable component of their pay often is lower than that of an indirect salesperson. Conflict The greatest conflict in sales force organizations arises when two or more people are asked to serve the same customer. Establishing specific guidelines about how each individual should behave can help, but problems inevitably arise. Managing this conflict is much easier when each salesperson’s product meets a unique customer need. Managing Salespeople The culture of a sales organization is defined by the way it recruits, trains, supervises, motivates and evaluates its salespeople. Using a consistent approach to these policies helps salespeople deal with the tension of having to serve both the company and its customers; this in turn helps keep their morale and productivity high. Anderson and Onyemah (2006) describe sales management systems as being either outcome- or behavior-based. Outcome-based management systems measure and reward results without consideration of how those results are achieved. This establishes a competitive culture – everyone knows who is making the big sales and who is not. Managers are few and far between, and salespeople enjoy considerable autonomy. The customer is king in these systems. Outcome-based systems work best when: Sales are competitive There are many ways to close a deal Customers need information Customers trust the salesperson Behavior-based management systems, on the other hand, measure and reward what salespeople do rather than the results of their actions. Managers play a much bigger role in their salespeople’s day-to-day lives, and salespeople pay close attention to cues from their managers. The sales manager is king in these systems. Behavior-based systems work best when: Non-sales priorities matter The company needs to protect its brand Salespeople lack experience While most companies create a system that lies somewhere between these two extremes, the policies of any system should be developed using a consistent approach in the following five areas: Recruiting Recruiting the right people is essential to building an effective sales organization. The best salespeople can be productive year after year and enable a company to achieve consistent 8 Module Note—Personal Selling and Sales Management 507-039 growth. Filling positions with the wrong salespeople not only hurts short-run productivity, but it also results in higher turnover and training costs. In outcome-based systems, salespeople need to be highly autonomous. While these companies tend to recruit more seasoned salespeople, even novices must be willing to take a sink or swim approach to their jobs. In behavior-based systems, salespeople receive greater managerial support. While this can appeal to novices, it can inhibit more seasoned salespeople, who already know how to deliver results, from joining. A behavior-based company’s high-performers are always at risk of being poached by outcome-based companies. Training In outcome-based systems, incoming salespeople receive little training and established salespeople receive little coaching. Salespeople are expected to learn how to improve their skills on their own. In behavior-based systems, salespeople receive extensive coaching even after they have been with the company for a long time. They learn the company’s approach to serving customers, and they are expected to follow it. Supervision In outcome-based systems, salespeople receive very little supervision and have broad decision rights. They are given extensive information and are expected to make final decisions. Salespeople are expected to be creative when solving customers’ problems. In behavior-based systems, sales managers constantly monitor their staff and make final decisions. They show serious interest in their salespeople’s activity reports. Motivation Salespeople are motivated by both intrinsic and extrinsic rewards. Intrinsic rewards include the satisfaction from offering superior service and the pleasure of solving difficult problems for customers. Extrinsic rewards include financial incentives and formal recognition. Compensation planning is given special attention in sales organizations. Salaries are used to protect salespeople from financial risk, and incentives, such as commissions and bonuses, are used to spur salespeople to exert greater effort. Salespeople who flourish in outcome-based systems thrive on extrinsic rewards. Incentives based on customer deliverables (such as overall revenue and profit generation, share of wallet attainment, and on-time billings collection) encompass a large part of compensation packages. Non-monetary compensation, such as sports car leases and exotic trips, can be especially effective because it allows high-performers to show off their status. Salespeople who flourish in behavior-based systems thrive on intrinsic rewards. Salary plays a much bigger role in their compensation packages, and incentives are tied to the attitudes, behavior and competencies that the company values. Evaluation In outcome-based systems, managers pay particular attention to bottom-line results and evaluate salespeople’s performance on only a few observable metrics. Evaluation criteria are transparent, and results are well-known throughout the entire organization. Performance is determined by customer behavior. In behavior-based systems, managers use a larger number of criteria to evaluate salespeople’s performance. Standards are opaque and managers may not be certain how to apply them. Performance is determined by who salespeople are and how they behave. 9 507-039 Module Note—Personal Selling and Sales Management Sales and Marketing Conflict “When I was a product manager, I thought that the conflict between sales and marketing was unproductive and wasted time. But when I became a general manager, I realized that allowing some conflict to exist between the two groups was healthy and helped me make better organizational decisions.” - Case protagonist While other departments within an organization sometimes view sales and marketing as interchangeable, considerable infighting can exist between these two groups. Anyone who has been to an annual kickoff meeting knows that salespeople believe that marketing sets unreasonable performance goals – how much are you asking me to sell this year? Whereas marketing believes that salespeople miss the forest for the trees – why can’t you see that our profitability depends on this strategy? Differences in orientation play a big role in creating this tension. Marketing organizations are typically designed to manage the product lifecycle. Product managers worry about the sales of their current products and whether they have products in the pipeline that will meet evolving trends. They are measured on both revenue and profit generation, so they have incentives to walk away from unprofitable business. Marketing is charged with understanding the voice of the customer, but it tends to think of customers in terms of segments rather than in terms of individual customers. Finally, marketing jobs tend to attract people who possess strong analytical skills and who enjoy strategic planning. Marketing managers need these skills because they interact with a broad cross- section of other organizations in the company. Sales organizations, on the other hand, are designed to satisfy customers’ immediate needs. They are measured on annual sales, and a large part of their compensation is tied to the achievement of these targets. While quotas compel salespeople to deliver business, they also instill a short-run mentality. Salespeople are often compensated only on revenue generation because revenue is easier to measure than profit on a transaction by transaction basis. This motivates them to seek new business without as much regard for its profitability. Finally, sales jobs tend to attract people who enjoy the thrill of the chase and developing personal relationships with clients. In fact, salespeople tend to distrust others who talk about customers, but rarely talk to customers. Salespeople know their customers by name and act as their personal advocates within the company. Some conflict between sales and marketing can be healthy. Salespeople manage the customer lifecycle. While they may pursue customers who will be profitable in the long run, they will shun products that do not meet their customers’ current needs. This can force product managers to compete for salespeople’s attention. If managed correctly, this competition can be useful because it forces product managers to completely explain what their product can and cannot do. In effect, they have to sell their products to the field before the field sells them to customers. On the other hand, it can get quickly out of control with managers using incentive contests and price discounts to entice salespeople to favor their products over others, perhaps to the detriment of the company’s bottom line. Marketing, if it is doing its job well, helps salespeople manage the tension created by their boundary spanning role. It influences a wide variety of decisions that help shape how the company interacts with customers – will the company use its internal salespeople to sell a product or will it look to an outside partner for help? Will the company deploy a generalist who sells the entire product line or many product specialists who concentrate on selling a single product? Disputes over issues like these can become very contentious because resolutions can lead to changes in the personal 10 Module Note—Personal Selling and Sales Management 507-039 relationships that salespeople have developed with customers. Finding the right answers directly affects the job satisfaction and productivity of salespeople and, in turn, the financial performance of the company. Additional Readings Anderson, Erin and Vincent Onyemah (2006) “How Right Should the Customer Be?” Harvard Business Review, Vol. 84, Issue 7/8, p59-67. Bonoma, Thomas V. (1982) “Major Sales: Who Really Does the Buying,” Harvard Business Review, Vol. 60, Issue 3, p111-119. Freese, Thomas A. (2003) Secrets of Question Based Selling, Naperville, IL: Sourcebooks. Kotler, Philip and Kevin Lane Keller (2006) Marketing Management, twelfth edition, Upper Saddle River, NJ: Pearson Prentice Hall. Kotler, Philip, Neil Rackham and Suj Krishnaswamy (2006) “Ending the War between Sales and Marketing,” Harvard Business Review, Vol. 84, Issue 7/8, p59-67. Mayer, David and Herbert M. Greenberg (1964) “What Makes a Good Salesman,” Harvard Business Review, Vol. 42, Issue 4, p119-125. McMurray, Robert N. (1961) “The Mystique of Super-Salesmanship,” Harvard Business Review, Vol. 39, Issue 2, p113-122. Narayandas, Das and Harold Weinstein (2005) “Comparing HBS MBAs with Top Hunter and Farmer Sales Reps,” HBS note 506-043. Rackham, Neil (1988) SPIN Selling. New York, NY: McGraw-Hill. Shapiro, Benson P. and Ronald S. Posner (1976) “Making the Major Sale,” Harvard Business Review, Vol. 54, Issue 2, p68-78. 11