Chapter 4

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Organizing the
Sales Effort
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 Learning Objectives
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• Identify the purposes of sales organization.

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• Understand the different horizontal organizational structures
of a sales force.
• Outline the major issues in key account and team selling.
• Discuss key vertical structure issues in sales organizations.
• Identify important issues in starting a new sales force from the
ground up. 2
 Key Terms

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• division and specialization •organization by selling
of labor function
• line organization •telemarketing
• line and staff organization •national or key accounts
• outsourcing the sales force •team selling
• manufacturers’ •selling center
representatives •matrix organization
• selling agents •multilevel selling
• transaction cost analysis •co-marketing alliances
(TCA)
•logistical alliances
• geographic organization
•span of control 3
• product organization
•
 Key Terms
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• Division and specialization of labor (pg. 109)
– Dividing a function into its component activities and assigning
each activity to a specialist who can increase the efficiency with
which almost anything is performed.
• Line organization (pg. 109)
– Vertical organization in which the chain of command runs from the
chief sales executive down through levels of subordinates. Each
subordinate is responsible to only one person on the next higher
level, and each is expected to perform all the necessary sales
management activities relevant to his or her own level.
• Line and staff organization (pg. 110)
– Several sales management activities, such as personnel selection,
training, and distributor relations, are assigned to separate staff 4
specialists.
 Key Terms
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• Outsourcing the sales force (pg. 111)
– Term used to indicate use of agents.
• Manufacturer’s representatives (pg. 111)
– Intermediaries who sell part of the output of their
principals, the manufacturer they represent, on an
extended contract basis.
• Selling agents (pg. 111)
– Intermediaries who do not take title or possession of goods
they sell and are compensated solely by commissions from5
their principals.
 Key Terms
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• Transaction cost analysis (TCA) (pg. 114)
– This is a theory that states when substantial transaction-
specific assets are necessary to sell a manufacturer’s
product, the costs of using and administering independent
agents (i.e., the manufacturer’s transaction costs) are
likely to be higher than the costs of hiring and managing a
company sales force.
• Geographic organization (pg. 115)
– Individual salespeople are assigned to separate geographic
territories.
• Product organization (pg. 116)
– Separate sales forces are in place for each product or 6
product category in their line.
 Key Terms
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• Organization by customer type (pg. 118)
– Creation of separate sales teams to call on a particular
customer type.
• Organization by selling function (pg. 119)
– Different salespeople specialize in performing different
selling functions.
• Telemarketing (pg. 119)
– Selling functions are performed over the telephone. 7
 Key Terms
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• National or key accounts (pg. 120)
– Large and important customers.
• Team selling (pg. 123)
– Assigning a group of specialists inside the firm to an individual customer.
• Selling center (pg. 123)
• A group of individuals from the organization (marketing customer service,
sales, etc.) assembled to help the salesperson do his/her job more effectively

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 Key Terms
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• Matrix organization (pg. 124)
– Type of team selling in which direct reports and supporting
internal consultants bring collective expertise to bear for
the client or customer.
• Multilevel selling (pg. 125)
– A variation of team selling, where the sales team consists
of personnel from various managerial levels who call on
their counterparts in the buying organization.

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 Key Terms
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• Co-marketing alliances (pg. 125)
– Joint marketing and sales programs among suppliers, in
order to sell integrated systems directly to the ultimate
customer.
• Logistical alliances (pg. 125)
– Alliances between customers and suppliers resulting in the
development of computerized information and ordering
systems for customers to place orders directly via a
dedicated telephone or satellite link to suppliers’
computers.
• Span of control (pg. 126)
– The number of people each manager supervises. 10
 Importance of Sales
Organization Decisions
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• Organizing the activities and management of the sales force
forms a major part of strategic sales planning
• Managers are becoming more proactive in restructuring
• A strong corporate vision and effective strategic market
planning are closely linked with how the organization is
structured and how it interacts with its customers

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 Purposes of Sales
Organization
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• Activities should be divided and arranged in such a way the
firm can benefit from the specialization of labor.
• The organizational structures should provide for stability and
continuity in the firm’s selling efforts.
• The structure should provide for the coordination of activities
assigned to different persons in the sales force and different
departments in the firm.

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 Division and Specialization of
Labor
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specialization within the sales force

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• Increase productivity - each specialist can concentrate efforts
and become more proficient at the assigned task
• Divide required selling activities to gain maximum benefits of

• Line organization - vertical organization, chain of command

runs from the chief sales executive down through levels of 13
subordinates
 Division and Specialization of
Labor
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• Line and staff – most common design
• Concerns
– What specific functions should be assigned to staff?
– How can staff activities be integrated with line sales
manager activities?
– Should staff activities be performed in-house or outsourced
to independent contractors?
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 Organize for Stability and
Continuity
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• Organize activities without regard to the talents or
preferences of current employees.
• People can be trained or recruited to fill positions.
• The same activities will be carried out at the same positions
within the firm even if designated individuals receive
promotions or leave.

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 Coordination and
Integration
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• The more an organization divides tasks among specialists, the
more difficult integrating those tasks becomes.
Issues:
• Sales force activities must be integrated with customer needs.
• Selling activities must be coordinated with other departments.
• Tasks must be integrated.

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 Outsourcing the Sales
Force
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Manufacturer’s Representatives
– intermediaries who sell part of the output of their
principals.
– Take neither ownership nor physical possession of the
goods they sell.
– Cover a specific territory and specialize in a limited range
of complementary products.

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 Outsourcing the Sales
Force
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Advantages of Manufacturer’s Reps
– Many established contacts and prospects
– Familiarity with the technical nature and applications of
specialized products
– The ability to keep expenses low by spreading selling costs
– They appear as a variable cost item on their principals’
income statement
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 Outsourcing the Sales
Force
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Six C’s of finding the right rep
• Compatible lines
• Compatible territories
• Compatible customers
• Credibility of the rep
• Capabilities
• Credits

Source: Dan Hanover, “Independents Day,” Sales & Marketing Management, April 2000, pp. 65–68. 19
 Outsourcing the Sales Force
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 Outsourcing the Sales
Force
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Selling Agents
– Intermediaries who do not take title or possession of the
goods they sell
– Compensated by commissions from their principals
– Have broad authority by their principals to modify prices
and terms of sale
– Actively shape the manufacturer’s promotional and sales
programs 21
 Considerations for
Outsourcing the Sales Force
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• Economic Criteria
• Control
• Transactions costs
• Strategic Flexibility

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Common Bases for Structuring
the Sales Effort
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Geographic organization
Product organization
Organization by customer type or markets
Organization by selling function

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 Geographic Organization
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• Simplest and most common method

territories

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• Individual salespeople assigned to separate geographic

• Each salesperson is responsible for performing all activities

necessary to sell all the products
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 Geographic Organization
Advantages
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• Tends to achieve • It does not

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lowest costs provide any

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• Travel time and benefits

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expenses are associated with
minimized. the specialization
• Sales of labor.
administration
and overhead
costs are kept
low. 26
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 Product Organization
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category) in the line.
Advantages

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Disadvantages

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• Individual salespeople
master effective selling • Duplication of

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methods for single or
related products. effort.
• Closer alignment of sales
and production possible.
• Sales management
controls the allocation of
the selling effort across
the line.

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 Organizing by Customer Type or
Markets
Organizing
0011 a sales
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extension of the marketing concept and a strategy of
market segmentation.

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Advantages
Disadvantages

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• Better
• Possible higher
understanding of
selling and
customer needs
administrative
• Increased familiarity costs
with certain
• Duplication of
businesses
effort
• Increased control
over the allocation
of the selling effort
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 Organizing by Selling
Function
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• Different salespeople specialize in performing different selling
functions – e.g. prospecting and developing new accounts
versus maintaining and servicing existing customers.

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 Role of Telemarketing
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• Prospecting for and qualifying potential new accounts
• Servicing existing accounts quickly when unexpected
problems arise
• Seeking repeat purchases from existing accounts that cannot
be covered efficiently in person
• Gaining quicker communication of newsworthy developments

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 National and Key Accounts
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• Organizational approach to deliver customer service
necessary to attract and maintain large and important
customers.

• Sales execs must be able to . . .

– be business managers capable of managing key accounts
– customize products and services
– plan and implement key account business plans
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 Organizing for National and
Key Accounts
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• Assign key accounts to top sales executives
• Create separate corporate division

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• Create a separate sales force to handle major accounts

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 Team Selling
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• Team selling integrates functional specialists with customer
relationship specialists.
• Benefits include:
– Questions answered faster
– People with similar interests speak directly with one
another

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 Team Selling
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• A selling center brings together individuals from around the
organization
• A matrix organization employs direct-reporting salespeople
who support internal consultants with specialized expertise

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 Alternative Organizations
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• Multi level selling –sales team consists of personnel from
various managerial levels who call on their counterparts in the
buying organization
• Co-Marketing Alliances – develop marketing and sales
programs to sell integrated systems directly to the ultimate
customer

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 Logistical Alliances and
Computerized Ordering
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• From the customer point of view, computerized ordering is
– Convenient,
– Flexible and
– Less time consuming
• How will computerized reorder systems change the role of the sales force?

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 Vertical Structure of Sales
Organizations
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Key questions:
– How many levels of sales managers should there be?
– How many people should each manager supervise? (span
of control)

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 Vertical Sales Organization
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• Generally, span of control should be smaller and number of
levels of managers larger when:
– The sales task is complex
– The profit impact of each salesperson’s performance is
high
– The salespeople in the organization are well paid and
professional
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 Vertical Sales Organization
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•

• Other issues:

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Span of control should be smaller at higher levels in the sales
organization

– How much authority should each manager be given?

– At what level of sales management should authority for different
decisions lay? 42
 Building Blocks for New Sales
Force Startup
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1. Start with a strategy
2. Appoint an expansion team
3. Leverage existing strengths
4. Go to the press
5. Avoid compensation snafus
6. Provide support

Sales managers assigned to create a new43

 Summary
A good organizational plan should satisfy three criteria.
1. It should allow the firm to realize the benefits that can be derived from
the division
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specialization of labor.
2. It should provide for stability and continuity in the firm’s selling
efforts.( by organizing
activities and not people.)

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3. It should produce effective coordination of the various activities
assigned to different

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persons in the sales force and different departments in the firm.
Question of horizontal organization focus on how specific selling

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activities are to be divided among members of the sales force.
1. Whether to use company employees to perform the sales function
or to rely on outside manufacturers’ representatives or sales agents. The
cost of using outside agents is usually lower than that of a company sales
force at relatively low sales volume. However, most executives believe
company employees will generate greater levels of sales and are easier to
control than agents.
When a firm employs its own sales force, four types of horizontal
organization are commonly found, structured according to (1) geography,
(2) type of product, (3) type of customer, and (4) selling function.
Geographic organization is the simplest and most common. It possesses
the advantages of low cost and clear identification of which sales person
is responsible for each customer. Its primary disadvantages is that it does
not provide the firm with any benefits from division and specialization of
labor. 44
2. Specializing of the sales force along product lines allows
salespeople to develop great familiarity with technical contributes,
 Summary
Two key questions must be addressed in deciding on
an effective vertical structure of the sales organization: (1)
How many levels of sales managers should there be? (2)
How
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answers are related: For a given number of salespeople, a
greater span of control produces fewer levels of
management. Although it is difficult to unequivocally state

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the optimal span of control for a firm, it is generally true

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that the span of control should be smaller in those firms
where
(1) the sales task is complex,

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(2) the profit impact of each salesperson’s
performance is high, and
(3) the salespeople in the organization are well paid
and professional.
Another question that must be addressed in designing the
vertical structure of a sales organization is, How much
authority should be given each manager in the sales
management hierarchy, particularly with respect to hiring,
firing, and evaluating subordinates? As a general rule, the
more important such decisions are to the firm, the higher
the level of management that should make such decisions.45
Starting up a sales force from scratch requires strong
 Summary
Organizing a sales force by type of customer or
market served allows salespeople to better
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various types of customers. Salespeople are more
likely to discover ideas for mew products and

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marketing approaches that will appeal to those

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customers. However, this scheme also produces
duplication of effort, which tends to increase selling

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and administrative expenses.
A selling function organizational philosophy holds that
people should be allowed to do what they do best.
Thus, it makes sense to have, say, one sales force
specializing in prospecting for and developing new
accounts while another maintains and service
existing customers. These arrangements are often
difficult to implement because of coordination
problems.
In addition to deciding on a basic structure, 46
a firm
needs to specify how it intends to service national