Do we need a direct sales force?

1. Do we need a direct sales force? • Jamestown • Case assumptions and analysis • The direct sales force vs. manufacturers’ reps

2. O’Brien’s Cost Assumptions • Structure assumptions: • Sales force size • Sales force growth of 20% and sales force size • Span of control, number of managers • Compensation assumptions: • Compensation level: level of experience; industry • Turnover rate=15%

3. O’Brien’s Assumptions • Miscellaneous assumptions: • Rep commission rate 12%, not 10% • No growth in compensation or overhead as the sales force grows • No expenses for the sales manager • Doesn’t subtract start-up costs from savings • Does not include sales information system

4. O’Brien’s Assumptions • Sales assumptions • Analysis

5. What should she have done instead-Sales Force Size? • Breakdown method • N=forecasted sales volume/SP productivity • Causal direction problems • Workload method • N=total work required/expected work from SP • Total work required= f(# of accounts of each size, time required for calls, nonselling and travel time)

6. What should she have done instead-Sales Force Size? • Incremental method • A salesperson should be added as long as the incremental profit produced by the additions exceeds the incremental costs

7. Advantages of Reps • reps can afford to call on small accounts because they have multiple lines • high travel time between accounts is absorbed across multiple lines • there may be synergies across multiple lines • reps in the business for awhile tend to have both effort and ability

8. Advantages of Reps • reps have established contacts, relationships • savings at lower level of sales (% of sales) relative to direct • sales expenses a direct function of sales volume

9. Drawbacks of Reps • share of mind (many masters) • must bid for attention, sometimes too diversified • good reps are often taken (and there are lots of bad ones) • little control- lots of carrots, few sticks Sum: often highly efficient, but not always effective

10. Use Reps When: • products are not overly complex • little company specific knowledge or training is required (low specific assets/investment) • products have a short selling cycle • selling requires no teamwork • output/outcome measures are easily available

11. Use Reps When: • some territories are sparse, with high travel costs (that would be born by the rep) • many customers are small and may not warrant visits from a high-cost direct force • products are seasonal or volatile- environmental uncertainty

12. Advantages of a Direct Sales Force • all their attention is devoted to your products • eventual savings as a percentage of sales (as sales grow) • greater control is possible • attention can be directed to particular accounts and/or activities and/or products • direct force may provide better feedback

13. Drawbacks of Direct • heavy fixed costs- salesperson, managers, information systems • difficult to set up, slow to get up to speed • not easy to manage- benefits of control may not materialize Sum: can be very effective, if managed well- but good management is expensive

14. Use Direct When: • after-sale service (e.g., training of customers) is important • the company desires a balance of effort among lines and wants to encourage selling high-margin and new products- behavior control more likely with direct sales force than with reps • team-selling is required or there is a long selling cycle

15. Use Direct When: • sales and margins are high enough to support a direct force and cover fixed costs • the product line is broad, giving a direct force some of the synergy advantages a rep would have with multiple lines

16. Sum, Rep vs. Direct: What to consider • How much behavioral control is needed • support/service • need for team selling • selling focus by product • length of the selling cycle • Product characteristics • complexity • size of the line

17. Sum, Rep vs. Direct: What to consider • Salesperson characteristics • knowledge/expertise • risk averse/risk-seeking • Environmental Factors • quantity and predictability of sales • size of accounts, dispersion of accounts

18. Relationship to Control Systems Low Control High Control Mfr. Reps Direct with commission, low supervision Direct with salary, high supervision