Organization
and
Compensation
Chapter 15
Organizational Structure
• Perhaps the classic form of organising a salesforce is along geographical lines, but the changing
needs of customers and technological advances have led many companies to reconsider their
salesforce organisation.
• The strengths and weaknesses of each type of organisational structure, as illustrated in Figure 15.1,
will now be examined.
1) Geographical structure
• An advantage of this form of organisation is its simplicity. Each salesperson is assigned a territory
over which to have sole responsibility for sales achievement.
• Their close geographical proximity to customers encourages the development of personal friendships
which aids sales effectiveness.
• Also, compared with other organisational forms, e.g. product or market specialisation, travelling
expenses are likely to be lower.
• A potential weakness of the geographical structure is that the salesperson is required to sell the full
range of the company’s products. They may be very different technically and sell into a number of
diverse markets.
1) Geographical structure
• salespeople in discrete geographical territories, covering all types of customer, are relatively weak in
interpreting buyer behaviour patterns and reporting changes in the operational circumstances of
customers compared with salespeople organised along more specialised lines.
2) Product specialisation structure
• Conditions that are conducive to this form of organisation are where the company sells a wide range
of technically complex and diverse products and key members of the decision-making unit of the
buying organisations are different for each product group.
• However, if the company’s products sell essentially to the same customers, problems of route
duplication (and hence higher travel costs) and customer annoyance can arise.
• A variant on the more common product line specialisation is to divide the salesforce according to new
and existing products (sometimes called functional specialisation).
• In industrial selling, companies sometimes separate their salesforces into development and
maintenance (i.e. existing products) sales teams. The development salespeople are highly trained in
handling very technical new products. They will spend considerable time overcoming commercial,
technical and installation problems for new customers
3) Customer-based structure
• The problem of the same customer being served by product divisions of the same supplier, the
complexity of buyer behaviour, which requires not only input from the sales function but from other
functional groups (such as engineering, finance, logistics and marketing), centralisation of
purchasing, and the immense value of some customers have led many suppliers to rethink how they
organise their salesforce.
3-a) Market-centred structure
• Another method of specialisation is by the type of market served. Often in industrial selling the market
is defined by industry type.
• Thus, although the range of products sold is essentially the same, it might be sensible for a computer
firm to allocate its salespeople on the basis of the industry served, e.g. banking, manufacturing
companies and retailers, given that different industry groups have widely varying needs, problems
and potential applications.
• Specialisation by market served allows salespeople to gain greater insights into these factors for their
particular industry, as well as to monitor changes and trends within the industry that might affect
demand for their products.
• The cost of increased customer knowledge is increased travel expenses compared with
geographically determined territories.
3-b) Account-size structure
• The importance of a few large customers in many trade and industrial markets has given rise to the
establishment of a key or major account salesforce. Refer to figure 15.1.
• The team comprises senior salespeople who specialise in dealing with large customers that may
have different buying habits and demand more sophisticated sales arguments than smaller
companies. The team will be conversant with negotiation skills since they are likely to be given a
certain amount of discretion in terms of discounts, credit terms, etc., in order to secure large orders.
• Some organisations adopt a three-tier system, with senior salespeople negotiating with key accounts,
ordinary salespeople selling to medium-sized accounts, and a telemarketing team dealing with small
accounts.
3-b) Account-size structure
• A number of advantages are claimed for a key account salesforce structure:
1. Close working relationships with the customer. The salesperson knows who makes what decisions and who
influences the various players involved in the decision.
2. More in-depth penetration of the DMU. There is more time to cultivate relationships within the key account.
Salespeople can ‘pull’ the buying decision through the organisation from the users, deciders and influencers to
the buyer, rather than the more difficult task of ‘pushing’ it through the buyer into the organisation, as is done
with more traditional sales approaches.
3. Higher sales. Most companies who have adopted key account selling claim that sales have risen as a result.
4. The provision of an opportunity for advancement for career salespeople. A tiered salesforce system with key
(or national) account selling at the top provides promotional opportunities for salespeople who wish to advance
within the salesforce rather than enter a traditional sales management position.
3-b) Account-size structure
• The term national account is generally considered to refer to large and important customers who may
have centralised purchasing departments that buy or co-ordinate buying for decentralised,
geographically dispersed branches that transcend sales territory boundaries.
• Selling to such firms often involves the following:
1. Obtaining acceptance of the company’s products at the buyer’s headquarters.
2. Negotiating long-term supply contracts.
3. Maintaining favourable buyer–seller relationships at various levels in the buying organisation.
4. Establishing first-class customer service.
3-c) New/Existing account structure
• A further method of sales organisation is to create two teams of salespeople. The first team services
existing accounts, while the second concentrates on seeking new accounts. This structure recognises
the following:
1. Gaining new customers is a specialised activity demanding prospecting skills, patience, ability to accept higher
rejection rates than when calling upon existing customers, and the time to cultivate new relationships.
2. Placing this function in the hands of the regular salesforce may result in its neglect since the salespeople may
view it as time which could be better spent with existing customers
3. Salespeople may prefer to call upon long-established customers whom they know, rather than prospects
where they might face rejection and unpleasantness.
• New account salespeople have been found to spend more time exploring the prospect’s needs and
provide more information to management regarding buyer behaviour and attitudes than salespeople
working under a conventional system.
• Table 15.2 provides a summary of the key strengths and weaknesses of customer-based structures.
4) Mixed organisation
• This section has discussed the merits and weaknesses of the major sales organisational structures. In
practice a combination may be used.
• For example, in order to minimise travelling expenses, a company using a two-product group structure
may divide the country into geographically based territories with two salespeople operating within each
one.
• Many companies use all forms of selling simultaneously: for very big accounts they use key account
specialists; for the balance of small and medium accounts they use general territory representatives,
perhaps supplemented by product application specialists who help generalists across several territories.
• The challenge to any sales manager is to know how to assess the options. Financial, customer
coverage and organisational flexibility trade-offs need to be made.
• As companies internationalise, consideration of salesforce organisation on a global scale needs to be
made.
4) Mixed organisation
• This section has discussed the merits and weaknesses of the major sales organisational structures. In
practice a combination may be used.
• For example, in order to minimise travelling expenses, a company using a two-product group structure
may divide the country into geographically based territories with two salespeople operating within each
one.
• Many companies use all forms of selling simultaneously: for very big accounts they use key account
specialists; for the balance of small and medium accounts they use general territory representatives,
perhaps supplemented by product application specialists who help generalists across several territories.
• The challenge to any sales manager is to know how to assess the options. Financial, customer
coverage and organisational flexibility trade-offs need to be made.
• As companies internationalise, consideration of salesforce organisation on a global scale needs to be
made.
DETERMINING THE NUMBER OF SALESPEOPLE-
The workload approach
• The workload approach allows the number of salespeople needed to be calculated, given that the
company knows the number of calls per year it wishes its salespeople to make on different classes of
customer.
• Talley showed how the number of salespeople could be calculated by following a series of steps:
1. Customers are grouped into categories according to the value of goods bought and potential for the future.
2. The call frequency (number of calls on an account per year) is assessed for each category of customer.
3. The total required workload per year is calculated by multiplying the call frequency and number of customers in
each category and then summing for all categories.
4. The average number of calls per week per salesperson is estimated.
5. The number of working weeks per year is calculated.
6. The average number of calls a salesperson can make per year is calculated by multiplying (4) and (5).
7. The number of salespeople required is determined by dividing the total annual calls required by the average
number of calls one salesperson can make per year.
DETERMINING THE NUMBER OF SALESPEOPLE-
The workload approach
• When prospecting forms an important part of the salesperson’s job, potential customers can be
included in the customer categories according to potential.
• Alternatively, separate categories can be formed, with their own call rates, to give an estimation of the
workload required to cover prospecting. This is then added to the workload estimate derived from
actual customers to produce a total workload figure.
ESTABLISHING SALES TERRITORIES
• Territory design is an important organisational issue since it is a major determinant of salespeople’s
opportunity to perform well and their ability to earn incentive pay where incentives are linked directly
to territory-level individual performance.
• Faulty territory design decisions prevent the best use of expensive selling activities and can harm
salespeople’s attitudes, behaviour and effectiveness when they believe they have been treated
unfairly in territory allocation.
ESTABLISHING SALES TERRITORIES
• There are two basic considerations used to allocate salespeople to territories. First, management
may wish to balance workload between territories. Look at page 446 to see how workload can be
defined.
• The data will be determined partly by executive judgement, e.g. how long to spend with each
customer type on average, and, where a salesforce already exists, by observation, e.g. how long it
takes to travel between customers in different existing territories.
• These data can be obtained during field visits with salespeople and estimates of current workloads
calculated. For new sales teams the input into the formula will of necessity be more judgemental, but
the equation does provide a conceptual framework for assessing territory workload
ESTABLISHING SALES TERRITORIES
• The second consideration management may wish to use in working out territories is sales potential.
Equalising workload may result in territories of widely differing potential.
• This may be accepted as a fact of life by some companies and dealt with by assigning their best
salespeople to the territories of higher potential. Indeed, moving salespeople from lower to higher
potential territories could be used as a form of promotion.
• If company policy dictates that all salespeople should be treated equally, then a commission scheme
based on the attainment of sales quotas, which vary according to territory potential, should establish a
sense of fairness.
• However, if, after preliminary determination of territories by workload, sales potentials are widely
disparate, it may be necessary to carry out some adjustment.
• It may be possible to modify adjacent territory boundaries so that a high potential territory surrenders
a number of large accounts in return for gaining some smaller accounts from a neighbouring lower
potential territory.
ESTABLISHING SALES TERRITORIES
• Designing territories calls for a blend of sound analysis and plain common sense.
• For example, it would be illogical to design territories purely on the basis of equalising sales potential
if the result produced strips of territory which failed to recognise the road system (especially
motorways) as it exists in the country today.
Territory revision
• A sales territory should not be considered a permanent unit. The following factors may suggest the
need for territory revision:
• change in consumer preference;
• competitive activity;
• diminution in the usefulness of chosen distribution channels;
• complete closure of an outlet or group of stores;
• increases in the cost of covering territories;
• salesforce complacency.
Territory revision
• Before deciding that changes are necessary, a number of aspects of the sales effort should be
investigated.
• The most common indicators that something might be wrong with the territorial structure is falling
sales volume.
• However, great care must be taken before accepting this as a reason for territory revision.
• Sales may be falling because the selling and promotion effort within the territory is not as effective as
it should be. If this is the case, then it is not the boundaries of the sales area that need revision.
• Salespeople may be calling only on the prospects which offer the greatest potential. If there is no
systematic plan for the territory, salespeople may make a poor job of planning their calls and this may
result in an increase in non-selling time (e.g. travelling time).
Territory revision
• Furthermore, the supervision may be at fault. If sales personnel are not supervised properly, they may
lose their enthusiasm for the job or even for the product.
• Before changes are implemented, a reappraisal of market potential should take place. It may be that
the original distributors of the products are in need of replacement or motivation because they have
become disenchanted with the company, its products or policies.
• Consumer acceptance of the product may need to be investigated before territories are revised. This
may require a limited market survey. The current activities of competitors should also be investigated.
