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”

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

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

4. Typical Sales Response Functions

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

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

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

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....

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)

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

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

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

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

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

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

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

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)

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

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.

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.

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

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