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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”

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Topics we’ll cover today

Sales Response FunctionsSyntex CaseOther issues in sales force structure

& organization

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What is a sales response function?

Sales (territory) = f(effort of the sales rep)

Sales (group/organization)= f(effort of the group/organization)

Example

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Typical Sales Response Functions

Account 0 1 2 3 4 5 6

A 20 200 205 208 213 217 220

B 10 30 50 68 80 90 95

C 0 5 40 45 50 55 55

D 0 100 250 300 340 375 400

E 0 5 10 15 20 25 25

F 200 220 230 240 245 250 260

G 0 10 20 30 30 40 45

H 0 50 110 150 180 200 215

Present Hours AllocatedTotal Hours Allocated: 5+1+2+3+1+5+2+1=20Salesof Present Allocation: 912

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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

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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

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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

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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....

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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)

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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

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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

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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 decisionsAltered people’s understanding of where

the opportunities lay must divorce organization from the

company’s history and prepare for the future

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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

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Syntex- How Accurate were the Original Estimates?

Use base 1984 strategic plan forecastAdjust 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

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Syntex- The Model Forecasts vs. The Base Plan

Product “Base” FY‘84 Forecast

Base +Adjustment

Actual FY‘84

Model +Adjustment

Model FY‘84 Forecast

Naprosyn $175.00 $175.00 $204.00 $203.00 $203.00

Anaprox 26.00 35.30 28.00 27.60 18.30

Nurinyl 15.20 20.70 20.40 20.70 15.20

Norinyl 38.80 37.30 39.00 38.80 38.30

Synalar 33.80 36.20 34.90 33.80 31.40

Lydex 14.00 14.00 13.10 12.00 12.00

Nasalide 7.30 7.30 11.90 5.20 5.20

Total 325.80 351.30 341.30

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Syntex- Model Forecast vs. Base Plan and Results

Model mean absolute deviation $1.51 million

Base plan absolute deviation $6.44 millionSales $25.5 million higher than plan in

directions predicted by modelModel response functions were

conservative on average

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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)

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Sales Force Structure & Organization

Generalist vs. specialized force(s) Partitioning across:

geography products customer segments type of selling task technology application combinations of above

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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.

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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.

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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

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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 AssociatesTerritory Design