Deployment, Allocation & Evaluation Decisions are all Interrelated :1 Deployment, Allocation & Evaluation Decisions are all Interrelated Deployment Decisions How large should my sales force be? How should I structure my territories? Do I need to realign? Allocation Decisions How much emphasis should each product or segment receive? How often should my reps call on each account and prospect? Evaluation Decisions What sales volume should I expect from each salesperson? ALL OF THESE DECISIONS DEPEND ON “SALES RESPONSE FUNCTIONS”


Topics we’ll cover today :2 Topics we’ll cover today Sales Response Functions Syntex Case Other issues in sales force structure & organization


What is a sales response function? :3 What is a sales response function? Sales (territory) = f(effort of the sales rep) Sales (group/organization)= f(effort of the group/organization) Example


Typical Sales Response Functions :4 Typical Sales Response Functions


Criteria for Planning Across Accounts :5 Criteria for Planning Across Accounts Effort Required & Payoffs for Each Account Potential of Each Account (A,B,C accounts) Number of calls/time required for each account Sales Response Curves for each account Competition for each account Efficiency Routing Planned versus Unplanned Calls


Estimating Sales Response Functions :6 Estimating Sales Response Functions Regression (econometrics) need lots of observations historical data, restricted range- firms don’t experiment limited ability to extrapolate outside the range of data hard to handle non-linearities Experimentation let’s see what happens when we don’t call at all on our large accounts Subjective Estimates (judgment) somebody’s estimates are treated as data and fit to a model Examples: CALLPLAN and Syntex Blitzing blanket an area for a short time frame to assess the responsiveness of the territory


How do we get subjective estimates? :7 How do we get subjective estimates? Ask individual/group for estimates of response at various effort levels. Syntex: No effort, 50% of current effort, current effort, 150% of current effort and saturation level of effort Fit a curve through the estimates (using appropriate software) KEY ASSUMPTION: Judgement will provide a relatively accurate view of the world


Using the Sales Response Function for Deployment & Allocation Decision Making :8 Using the Sales Response Function for Deployment & Allocation Decision Making Sales Force Size (Incremental Method) A salesperson should be added as long as the incremental profit produced by the addition exceeds the incremental costs (Syntex) Allocating resources across accounts (CALLPLAN) or... or products (Syntex).. or segments (Syntex).. or....


Syntex :9 Syntex Size of the Sales Force and Allocation of the Reps across Products/Segments Inputs to the Model (Exhibits 4 and 5) # of Reps/Product= 430 x (# of presentations for product/total # of presentations)


Syntex- Immediate Realizations :10 Syntex- Immediate Realizations Optimal size of sales force was considerably larger than expected (550 vs. 740) Existing resources should immediately be redeployed to support the major product A significant bottom line opportunity cost resulting from the constraint of selling time Sales and marketing shared some explicit, intuitive understanding of how our products and markets behaved. This recognition of a shared common belief promoted a sense of partnership, mutual respect and cohesiveness between two disparate groups


Syntex- Immediate Actions :11 Syntex- Immediate Actions Decided to increase sales force to 700 as quickly as possible This was somewhat below the model maximum of 740 (“cautious skepticism”) Could only add 100 reps/year due to hiring/training constraints All necessary resources would be mobilized to achieve this objective


Syntex- Longer Term Ramifications :12 Syntex- Longer Term Ramifications Collective recognition of Naprosyn’s importance, both currently and for the foreseeable future this recognition aided in improving resource volume and allocation decisions Altered people’s understanding of where the opportunities lay must divorce organization from the company’s history and prepare for the future


Syntex- Why were these actions agreed to so quickly? :13 Syntex- Why were these actions agreed to so quickly? The model output had the appearance of a scientific approach It coincided with the managers’ intuitive judgements


Syntex- How Accurate were the Original Estimates? :14 Syntex- How Accurate were the Original Estimates? Use base 1984 strategic plan forecast Adjust for 3 unforecastable events; market withdrawal of competitive product, new dosage form of birth control pills, pipeline filling for new form Multiply by Delphi estimated response function at the actual level of sales effort applied during fiscal 1983; 1984


Syntex- The Model Forecasts vs. The Base Plan :15 Syntex- The Model Forecasts vs. The Base Plan


Syntex- Model Forecast vs. Base Plan and Results :16 Syntex- Model Forecast vs. Base Plan and Results Model mean absolute deviation $1.51 million Base plan absolute deviation $6.44 million Sales $25.5 million higher than plan in directions predicted by model Model response functions were conservative on average


Advantages of the “Incremental/ Sales Response” Approach :17 Advantages of the “Incremental/ Sales Response” Approach Sales Force Size/Allocation Decisions Managers gain insight while coming to consensus on sales response curves Focuses on profitability rather than efficiency Can highlight opportunities which may be clouded by firm’s historical approach to allocation of resources Call Planning Decisions Sales Rep thinks about the territory S/he is better prepared for each call Improves weekly and long-range planning Spend time where it will pay off most Frees up time for selling Better communication between salesperson and supervisor Subordinate to salesperson’s judgment (more likely to be used)


Sales Force Structure & Organization :18 Sales Force Structure & Organization Generalist vs. specialized force(s) Partitioning across: geography products customer segments type of selling task technology application combinations of above


Single/Generalist Sales Force :19 Single/Generalist Sales Force Advantages economies of scale in administration and calling sometimes better access to the customer can serve more needs of the customer avoid confusing the customer one person is accountable to the customer Disadvantages human tendency to focus: cherry picking one blockbuster product gets all the attention difficult to develop expertise on all products Tends to be best where effort is the principal determinant of sales.


Specialized Sales Forces :20 Specialized Sales Forces Advantages task focus- new product launch product focus- high tech, complex products, customized products/services coherent role for sales person Disadvantages internal communications problematic no big picture becomes awkward quickly Tends to be best where skill is the principal determinant of sales.


Dividing the Sales Force :21 Dividing the Sales Force Divide by geography when: customer needs are similar product line is narrow or easy to understand selling tasks require similar skills Divide by customer type when: customer needs are diverse product line is narrow or easy to understand selling tasks require similar skills Divide by task or product when: customer needs are similar product line is broad or complex selling tasks require diverse skills


Next time: :22 Next time: Now that we know how many people and how they should be divided.. Where exactly do they go? Guest speaker from Z-S Associates Territory Design