Monday, 20 de February, 2017

By Jaume Muñoz, Program Director of the weekend Master in Marketing Management and Master in Commercial and Sales Management

The purpose of each of the departments in a company must be elastic and related to the company’s purpose (profitability). This business planning logic no longer stands when it comes to the sales department, as though this department did not play in the same league. My argument rests on two fundamental principles verified over the years:

  1. In most companies, the purpose of the sales department is to achieve a sales volume, regardless of which products or customers it is achieved with. In some cases, the only limitation is the profitability depending on the customer. What matters is the sales volume.
  2. There is no strategy adapted to each sales region. Objectives are simply set with the certainty or hope that they are achieved.

In 1960, McCarthy simplified an original list of 12 strategic marketing factors down to four key factors: Product, Price, Place (distribution) and Promotion. In 1984, the AMA (American Marketing Association) enshrined this theory in its definition of marketing: “the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods and services to create and satisfy individual and organizational objectives”. The factors combined in this respect were referred to as the Marketing Mix.

In short, this is a set of elements, which I call “strategic factors”, which underpin a company’s marketing strategy and enables it to achieve the operational objective it has set.

A lot of water has gone under the bridge since 1984 but, in the world of sales, things are still the same, with a marketing plan that sets out product, price, distribution and communication strategies for a certain target or segment, with a number of sales departments for which only a commercial purpose or annuals sales figures are established.

What about elasticity and the relation between sales objectives and the profitability sought by the company? Or the sales department’s contribution with marketing with respect to collaborating with its product strategies? It doesn’t matter as we are dealing with the well-known and incomprehensible ‘silo mentality’ in which the key approach is to achieve each department’s objectives, regardless of customer satisfaction or the goals of other departments. Some people say that this problem has been resolved by the introduction of loyalty cards.

An even harder challenge is finding commercial directors or companies that define and implement sales strategies for each salesperson in order to ensure their objectives are achieved.

Where can we find the strategic factors which, depending on the company’s purpose, underpin the sales strategies? Why in the case of marketing is the strategy based on the strategic marketing factors or the marketing mix?

Fear of change and its impact on the sales figures is hindering creativity in many companies and, as a result, the incorporation of a salesperson-specific commercial strategy is required, based on what I refer to as strategic sales factors or the Sales Mix.

What is the Sales Mix? The Sales Mix or the combination of the strategic sales factors is the process of planning and executing four key factors for each salesperson and, of course, for the company: Profitability, Product, Customers and Commercial Management.

Setting an objective and expecting salespeople to reach it is simply a symptom of reactive commercial management. Proactive commercial management must establish its strategy based on the strategic factors that are most related/elastic with respect to the company’s purpose, with its own sales mix being constructed as follows:

Profitability: This is based on how much do we want to sell and what profit margin we should sell at. This is measured by a set of KPIs, such as current margin/last year’s margin.

Product: This involves supporting the company’s product policy from the sales department. In other words, it is defining what we want to sell. This is measured using a set of KPIs, such as sales per family/total sales.

Customers: This defines whom we want to sell to, which market segment interests us, what type and size of customer we are most competitive with, what customers we can give added value, etc. Depending on the sales volume of the customers, we can see that more customers does not necessarily mean greater profitability, but it may mean higher costs. This is measured using a set of KPIs, such as profit margin for Type 1 Customers / nº Type 1 Customers.

Commercial Management: Depending on the type of product and customer that we are aiming for, we must define how we want to sell, for instance, frequency of visits, visits to new customers, quoting policy, discount policy, etc. This is measured using a set of KPIs, such as nº order / nº interviews or nº quotes accepted / nº quotes submitted.

Sales strategies are based on the sales mix. These actions with each strategic factor enable us to reach an objective that is fully aligned/related to the company’s purpose, as well as implementing the strategies designed by the marketing department for the customers. The KPIs are the main measurements of the process that enable us to evaluate the strategies for each strategic factor.

Remember: if you want to achieve new results, don’t keep doing the same thing.

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