Category: University of Mumbai BMS Notes

The actual selling process starts with prospecting and qualifying. However before this step, there is something called pre-sale preparation which identifies prospects and makes sales presentations where sales people attempt at convincing customers that a specific product can satisfy their needs.

There are many sales people who believe in following this step after the prospecting process which has to be done in a planned and scientific manner. Actually the pre-sale preparation phase is a phase of selling process-where sales people are found to prepare themselves with adequate knowledge about the products they are supposed to sell.

They are supposed to be aware of the competition and the category and profile of customers they are supposed to target. It is this phase that helps sales people present a credible picture of the product to the customer.

It is generally observed that sales people who are well prepared and have understood the complexity of the product and consumer buying behavior do have stronger communication ability than those who do not possess adequate understanding on the above.

Customers as such are low on knowledge quotient about a particular product and it is supposed that sales people with knowledge about products, technology and markets will be enabling the customer to make an informed choice. To a large extent, customers depend upon sales people for product related information.

When sales people fail to provide relevant information, it gives an opportunity to sales people of competitors to cash in on the opportunity. Talking about sales people’s knowledge base, there are three areas on which sales people should have adequate knowledge and those areas are product, company and competitor.

In the context of product knowledge, history of the company, finances, size of the company and policies and procedures of the company are some of the information that sales people of a company should possess.

In the context of product, the features, benefits, styles, origin and price of the products should be well understood by sales people. In competitor’s context, it is the industry structure, market share, market behavior that sales people should be aware of.

Process of Selling

The process of selling involves the following steps:

1. Pre-Sale Preparations

A salesman has to serve the customer and must identify a customer’s problems and prescribe a suitable solution. For this, a salesman must be familiar with the product characteristics, the market, the organization and the techniques of selling. Also he must know the customer, himself and the company. He must know buying motives and buying behaviour of the customers or prospects. He should be aware of current competition and market environment.

2. Prospecting

A salesman has to seek potential customers who are his prospects i.e., probable buyers. A prospect has unsatisfied need, ability to buy and willingness to buy. Prospecting relates to locating prospects. They can be through present customers, other salesman, phone directories, or by direct cold canvassing. These prospects must, of course, be accessible to salesman. Thus, prospecting is similar to the seeking function for the total marketing activities.

3. Pre-Approach

After locating a prospect, salesman should find out his needs and problems, his preferences and behaviour etc. The product may have to be tailored to the specific requirement of customer. On the basis of adequate information of the customer’s wants and desires, salesman can prepare his plan of sales presentation or interview. The sales presentation should match to the needs of the individual prospect. It should enable the salesman to handle his prospect smoothly through the buying process, i.e., during, the sales talk.

4. Approach

The next step is approach where the salesman comes face to face with the prospect. The approach has two parts, i.e., obtaining an interview, the first contact. He may use for this, telephone, reference or an introduction from another customer; and his business card. The salesman must be able to attract the prospect’s attention and get him interested in the product. It is very important to avoid being dismissed before he is able to present his product.

5. Sales Presentation

After the salesman has found a prospect and he has matched the customer’s wants with his product, he becomes ready to make a sales presentation. The sales presentations is closely related to the buying process of customers. The sales interview should generally go according to AIDA theory (i.e., Attention, Interest, Desire and Action).

Attention is attracted and interest is gained. The salesman at this point can increase the interest through smart and lively sales talk together with proper demonstration. Sometimes, visual aids are used in sales demonstration. These are common for capital goods or machineries.

After explaining the product characteristics and expected benefits, the salesman should find out customer’s reactions. The prospective customer’s all queries and doubts must be clearly answered. The salesman should find the customer satisfied. A satisfied sales presentation must be clear, complete, assertive about product’s superior performance and be able to gain the confidence of the prospect.

6. Objections

At any stage of sales interview, the prospect may attempt to postpone the purchase or resist purchase. A good salesman must consider an objection as an indication of how the prospect’s mind is working. The clever salesman should welcome an objection, interpret it correctly and will avoid it tactfully, without arguing with the customer.

7. Close

The close is the act of actually getting the prospects’ consent to buy. It is culmination of the efforts so far made by the salesman and is the climax of the entire sales process.

It is very important for salesman to be alert and find out the right moment for closing the deal. This is the “Psychological or reaction movement”, at which the minds of salesman and prospect are tuned together.

The salesman watches every sign of prospect willing to buy and shall apply “the close”. A sale is never complete until the product is finally in the hands of a satisfied customer.

8. The Follow-up

This stage is the post sale contacts. The salesman after obtaining the order, arranges for despatch and delivery of the product, facilitate grant of credit, reassure the customer on the wisdom of his purchase decision, and minimize dissatisfaction, if any.

The salesman should contact the customer periodically to maintain his goodwill. A sale is made not in the mind of salesman, nor over the counter, but in the mind of the buyer. A salesman should have the quality of empathy, i.e., reading customer’s mind. This will provide the salesman accurate information of buyer’s motives, feelings, emotions, and attitude etc.

The idea behind the creation of sales territories is to match the sales opportunities with the selling effort. A salesman is given a group of similar customers and prospects for servicing. This assignment by itself facilitates the planning and control of the sales operations.

Each territory has its own strong and weak points and management can use these strategically. Sales planning is with respect to the territories created. In a heterogeneous market, a territory is comparatively more homogenous. A territorial division also brings out an element of effectiveness in the sales operations. It also helps the appraisal of the sales effort.

Conceptually, a territory may represent:

(a) A particular geographical area mostly.

(b) A group of customer accounts or prospects, e.g., hospitals and institutions.

(c) A market

(d) An industry, i.e. pharma-central formulation units are a territory of bulk doing manufacturers.

Considered operationally, a territory represents a customer grouping. Though most of the companies emphasize geographical territories, some companies with technical style of selling ignore this basis and assign salespersons to a particular customer grouping.

Even in geographic territories, ultimately a salesman deals with a customer grouping. Geographical territories also do not matter much in insurance selling, property selling, selling in shares and securities and automobiles. In all situations when the salespersons are internal order takers, geographical territorial division does not matter. Only when the salespersons are external order getters, there is scope of geographical territorial division.

Specialized salespersons also call for non-geographical territorial division. Small companies and companies with innovative products also avoid geographical division.

Majority of companies, however, have adopted geographical territorial division. While assigning a territory, we have to consider the service requirements and cost of providing the service to the customers. Geography influences both of these. Even within a geographical division, there are groupings of customers and the division just for the sake of administrative convenience.

Companies deal directly from their headquarters with some important customers providing bulk of business. Such accounts are not assigned to any salesmen. These accounts are called house accounts.

Sales territories are established to achieve the following goals:

(i) To cover the market properly.

(ii) To deploy the salespeople effectively.

(iii) To service the customer grouping efficiently.

(iv) To evaluate the sales representatives.

(v) To facilitate higher productivity in selling and marketing effort.

(vi) To control selling expenses.

(vii) To coordinate personal selling and advertising.

Sales Territories: Meaning and Definitions

It is a geographical area including the customer group or groups that is assigned to a particular salesperson or the sales team. All the activities of the salesman or the sales team needs to be conducted within that area. In the same way, various geographical areas will be assigned to different sales people or sales team.

Sales territory planning and management is an important task, the sales team along with the top management in the sales department should spend time and plan the sales territories and provide guidelines for the management of the sales territories.

A sales territory is defined as a group of present and potential customers assigned to an individual salesperson, a group of salesperson, a branch, a dealer, a distributor, or a marketing organization at a given period of time. For a firm, a profitable sales territory is one which has a number of potential customers that are willing to buy the category of products sold under the firm’s brand name.

Territories are defined on the basis of geographical boundaries in many organizations. Though the geographic market may have a heterogeneous mix of both existing and potential customers, a decision on the basis of geographic coverage has distinctive advantages.

A well-planned territorial design, for example, helps in matching the selling efforts with the sales opportunities in that market. Sales managers assign their sales force the responsibility of serving particular groups of both present and potential customers and serve as a contact point within these markets. This helps to give a direction to the process of sales planning and control.

According to Still and Cundiff (2004), a sales territory is a grouping of customers and prospects assigned to an individual salesperson. Maynard and Davis (1957) are of the opinion that a sales territory is the basic unit of sales planning and control. According to Cranfield (1987), a sales territory is a geographical area containing the present and potential customers who can be effec­tively and economically served by a single salesperson, branch, dealer, or distributor.

An analysis of the above definitions indicates that a sales territory is a geographical area that identifies and serves a category and a certain number of customers. A sales territory helps in better sales planning and effective operational control. However, in some instances, companies do not follow geographic designs for sales territories.

For example, a small firm catering to a small niche market may not go in for a geographic design because sales planning and control can be more effectively planned from the corporate office itself.

There are some situations where companies decide to build sales territories on the basis of the urgency and frequency of customer requirements rather than geographic coverage.

These include situations where products are highly technical and complex in design, when organizations prefer either a technical sales force or a system-selling approach, and where a set of people with varied knowledge levels are grouped together to provide solutions to customers’ problems and queries. The problem with such a method is that the same customer may get calls from multiple salespeople from the same organization.

An alternative method is to make a single salesperson accountable for one set of clients only and if required, call technical specialists for assistance. Also, in situations where personal relation­ships and acquaintances have a bearing on sales, organizations do not prefer territorial designs for salespeople.

In the case of knowledge and investment products, for example, a customer may prefer to deal with the salespeople he is comfortable with. To respond to this preference, an organization may need to call upon a salesperson serving in another territory.

In the words of B. R. Canfield, “A sales territory is a geographical area containing present and potential customers who can be effectively and economically served by a single salesman, branch dealer or distributor.”

According to Stiff and Cundiff, “A sales territory is a grouping of customers and prospects assigned to an individual salesperson.”

According to Mynard and Davis, “Sales territory is the basic unit of sales planning and sales control.”

In the words of Stanton and Buskrik, “A sales territory is a number of present and potential customers located within a geographical area, and assigned to a sales person, branch or middlemen (retailers or wholesaler).”

Characteristics of Sales Territories

1. Sales territory is a geographical area containing a number of present and potential customers.
2. Different groups of customers are formed by a firm through allotment of territories.
3. It is a group of customers or geographical area assigned to a salesman.
4. It is the area that can be effectively and economically served by a single salesman.

Sales Territory Planning and Management:

1. Research the geographical area
2. Divide the area on the basis of population, accessibility, potential etc.
3. Study the consumer behaviour of the territory
4. Assess the revenue potential from the respective territories
5. Analyze the hurdles that may be present in the territories
6. Define the products suitable for the territory
7. Probe further to find out specific needs and wants of the people within the territory
8. Prepare a plan for each territory with quotas and tasks to be accomplished
9. Appoint sales people or sales team for each territory
10. Monitor and track the performance of each territory
11. Review sales people performance for each territory, and
12. Avoid overlapping territory because it causes conflict among the sales people.

Size of Sales Territories

There are various factors that influence the size of a sales territory. For a sales manager, an understanding of these factors will aid in deciding on the size of the sales territory. These factors include the nature and demand of the product, mode of physical distribution, the selling process, and transport and communication facilities in the overall market and territory.

Other factors that influence the size of the territory are government regulations, density of population and population spread within the territory, and market potential and growth rates. The level of competition, firms’ sales policy, ability of the salesperson, and the overall economic conditions prevailing in the country are other factors influencing the size of sales territories.

If a product is a consumer durable with a longer shelf life, the company may prefer to have a larger territory compared to smaller territories for the perishable commodities. Territories can be established on the basis of the nature of the product, namely consumer, industrial, durable, or non-durable.

Only when there is a huge demand in the market for the product, the companies decide on designing smaller territories so that the salespeople can cater to the customers and provide adequate service to them within a limited geographic area.

When companies decide to go through intermediaries such as wholesalers, who manage distribution to the retailers, they prefer to have a larger territory. On the other hand, in industrial buying, where bulk order booking is done by a salesperson or in situations where a company also handles the retailers, the size of the territory is kept small.

Organizations where a higher allotment is made towards selling expenses go in for larger territories as the outlays permit them to cover a wider area through their own salesforce.

Similarly, a better, cheaper, efficient, and faster transportation and communication facility makes companies decide whether or not the territories of the salespeople are large enough to take advantage of these facilities.

Territories in rural markets in India are smaller in comparison to the urban markets as transportation and communication is a problem in these markets. Government restrictions and regulations of taxes and the movements of the goods also influence the decisions of a firm in regard to the size of the territory.

In a market with a high density of population and market potential, companies decide in favour of smaller territories. In a highly competitive market, where the success of the enterprise largely depends on the close relationship that one firm has with customers, the size of the territory should be small.

If a company has experienced, well trained, and competent salespeople, it may go for a larger territorial cover, as compared to the organizations with novice salespeople who need to make more calls to realize a sale.

If a firm with a limited number of products wants to earn higher profits, the size of the territory will be larger, as here profit goals decide the size of the territory and the sales are derived out of fewer products. The overall condition of the economy also affects the size of the territory.

For example, a small-size territory is suitable for a firm during recession when prices have stabilized and customers are not willing to spend spontaneously. During a boom condition, however, firms can increase the size of the territory so that salespeople can cover a larger market with a higher demand due to an upturn in the economy.

Sales quotas are targets set for individual sales reps and teams to measure performance, incentivize salespeople, and increase company revenue. Sales quotas are typically tied to sales volume, costs, profit, or specific sales activities like appointments or calls, and effective quotas are ones in which 80% of your staff on average should be able to meet.

A number of factors are used for establishing sales quota for salesmen. The quota may be based on past sales records, buying power of customers, company policies, total production for the year, competition, etc.

1. Past sales records

Past sales of established organisations form a good index for future performance. Thus, while setting sales quota, past sales may be taken into account. Otherwise stated, the future sales quota is fixed keeping in view the past sales. New companies can fix their sales quota by observing and going through the past sales of the competing firms.

2. Buying power of customers

A manufacturer can have a rough estimate of the buying powers of customers of a particular area. The buying power of a particular area can be known by the economic status, income of the customers living in the area, living habits, etc. Accordingly, the manufacturer can estimate sales quota for that particular area.

3. Company’s policies

Company’s policies regarding credit, quality of goods, discount, selling terms have a direct impact while estimating sales quota for the salesman. In case the company has a liberal credit policy, high quality goods, offers higher rate of discount and facilitates installment selling, larger sales quota can be set for the individual salesman. These policies help to increase the demand for goods and services and as such increase the sales quota of each salesman.

4. Total production for the year

A company’s total production in a particular year also plays an important role in determining the size of the sales quota. If, in a particular year, the production is high then higher sales quota can be set for the salesmen because goods which are produced need to be sold. On the other hand, if the production is normal in a particular year, moderate sales quota for each salesman is fixed.

5. Extent of competition

If the company in question is facing higher competition, the sales quota fixed is usually lower. In other words, the intensity of competition is inversely proportional to the size of the sales quota. It means that companies enjoying lesser competition or near monopoly can have larger sales quota fixed for each salesman as there is every possibility of larger volume of sales.

6. Opinions of experts

Experts in the sales field are of immense help in determining the sales quota. Dealers, agents, consultancy firms and other agencies which are closer to the market are in a position to know the kind and quantity of goods that can be sold in a particular area. Companies can take the help of such agencies or persons in fixing sales quota for each salesman.

Methods of Setting Sales Quotas

The sales quota is determined in many ways.

4 important methods of setting sales quotas are discussed as follows:

1. Top Management Downward method

In this method, the management and executives, with their experience and judgement, estimate the total sales for the next year. Sales executives having enough experience in the sales are given the responsibility of setting such sales quotas. This method is sometimes called guess work quota method because it is estimated on the basis of executives’ guess work.

2. Territorial Estimate Upward method

This method is known as grassroots approach. In this method, the salesmen are asked to make estimation of sales of their territories for the coming years. The branch managers make adjustments in the salesman’s estimates. The district and divisional sales managers make further adjustments of salesman’s estimates with the cooperation of sales force. Finally, all such sales estimates are grouped and the sales estimate of the entire sales field is prepared.

3. Combination of Top Management-Downward and Territorial Estimate-Upward method

In this method, the above two methods of estimating sales quotas are combined. At the headquarters, the management by their past experience and judgement estimate the sales quota. At the grassroots level, the salesmen are asked to make their own estimates. Next, an overall estimate for the entire sales operations of the company is prepared based upon both the estimates. Then the estimate is divided into territories, products and salesmen.

4. Past Performance Method

Under this method, sales estimates are made keeping in view the past sales performance and the total sales estimate for the future is made by increasing the sales by a certain percentage. The increase is also made keeping in view of the competition, advertisement, economic condition, price of the product, etc. Then this total estimate is divided into sales quotas for each division, district, branch and individual salesman.

Besides, there are several methods of estimating sales quotas like survey of buyers’ intention, industry forecast and market share. While a company has the freedom to choose any method that suits it best, the basic criterion for choosing a particular method of sales quota estimation is that the method should be quick, less costly and more accurate.

Sales quotas are quantitative goals set by managers to measure and compare the performance of individual salespeople and to help determine their compensation.

Any kind of sales figures given to any particular person or region or distributor is called Sales Quota. It can be measured either in terms money or the stock of goods sold. It is particularly an amount of target sales that is assessed on daily or monthly basis. To assess the performance of an individual sales person, his/her ability is looked to meet the given target.

Types of Sales Quotas

This can include many things from cold calling, Marketing emails, advertisements, invitation to executives for events and many more things. It’s always in the interest of the sales team as to how they should get the stuff out.

1. Sales volume quota

This always includes sales in monetary terms or units sold for a specific period of time. This type of sales quotas is always set for a given year. The sales teams are then assigned their yearly quotas to be accomplished. These quotas are set in the areas mentioned below:

• Product line
• Product range
• Branch offices
• Individual sales person

2. Activity Quotas

Under such quotas the sales team is required to execute other activities that will have a long term bearing on the company’s goodwill. Here certain objectives related to the job are set in attaining the performance targets of the sales force. When it comes to the Indian companies we have few common types of these quotas as mentioned below:

• Quantity of sales presentation made
• Amount of calls made
• Number of dealer visits
• Recovery calls made
• New clients procured

3. Combination Quotas

In a growing number of firms, managers are designing new types of sales quotas — called combination quotas — that combine two or more activity- or behavior-based goals. These goals are chosen to reinforce a set of skills that salespeople are expected to master and continually improve. For example, a combination quota could include: number of customer calls, percentage reduction in sales expenses, number of product demonstrations, frequency of conversions from trial to sale, percentage of customers who repeat or increase purchases or number of new accounts opened.

4. Profit-Based Quotas

Sales quotas may be based on either net or gross profit margins of a product, brand or line. The advantage to the manager of this type of quota is that it eliminates the temptation to overemphasize highly visible, popular or trendy items over profitable ones. However, measurements of progress are generally less clear when goals are expressed in profits instead of in dollars or units. For this reason, profit-based quotas may encounter some resistance from salespeople.

5. Expense Quotas

These are linked to selling costs with a realistic time frame. Few companies set quotas for expenses to different sales levels achieved by the sales person. The sales team may be given an expense budget which is a percentage of a particular region’s sales volume. He/She should spend only that sum as expenses.

Other Measurement Dimensions

With increasing global competition and product customization, many companies are trying to differentiate themselves based on customer satisfaction. Their challenge is to motivate their salespeople to focus on building long-term relationships instead of making one-time sales. One motivational approach is to incorporate data from customer satisfaction surveys into traditional quota targets. For example, each salesperson may be tasked not only to sell certain numbers of items but also to attain satisfaction ratings at or above the median for his division.

Most companies use a permutation of these quotas. The best combined quotas are usually Sales volume and activity quota. Such combination influences selling and non selling activities. The above methods are only time tested from year to year to achieve the sales quota as these quotas are promised to vendors, investors and banking firms. They are also influenced by external factors and expenses which are not in the hands of sales personnel. It is advised not to have too many sales quotas as the sales person may not be able to equally concentrate on them.

Following are the methods generally employed for sales forecasting:

1. Survey of Buyers’ Views

This is direct method for making forecasting for short-term, in which the customers are asked what they are thinking to buy in near future say, in the coming year. In this method all the burden is with consumers, which may misjudge or mislead or may be uncertain about the quantity to be purchased by them in near future.

The disadvantages of this method are as follows:

• Consumer’s buying intentions are irregular.
• When consumers have to select between different alternatives, they are unable to foresee their choices.
• Buyers may be anxious for purchasing the products but due to certain limitations they may be unable to purchase them.

2. Collective Opinion or Sales Force Polling

In this method forecasting depends upon the salesman’s estimation for their respective areas, because the sales-man are closest to the customers, hence can estimate more properly about the consumers’ reaction about the product and their future requirements.

All the estimates of salesmen are consolidated to know the total estimate of the sales. This final estimate then goes through severs checking to avoid undue imagination which is done many times by the salesmen.

The revised estimates are then again examined in the light of factors like expected change in design, change in prices, advertisements, competition, purchasing power of local people, employment, population etc.

This method of collective opinion takes advantages of collective wisdom of salesmen, senior executives like production manager, sales manager, marketing officials and managers.

Advantage of Collective Opinion or Sales Force Polling

• This method is simple and requires no statistical technique.
• The forecasts are based on the knowledge of salesmen, who are directly responsible for the sales.
• In practice, this method is much useful in the case of new products.

Disadvantage of Collective Opinion or Sales Force Polling

• This method is useful only for short-term forecasting, i.e. maximum for one year.
• As the forecasting is dependent upon the salesmen’s estimation and if sales quotas are fixed then they, in general under-estimate the forecast.
• As Salesmen have no knowledge about the economic changes, the estimate by them are not so correct many times.
• As the estimation is full time job, the quality to look into the future must be with the salesmen.

3. Trend Projections

Well-established firms which have considerable data on sales, these data are arranged in a chronological order, known as ‘time series’. Thus ‘time series’ are analysed before making the forecasts.

There is a common method known as ‘Project the trend’. In this method the trend line is projected by some statistical method, generally, by least square method.

The time series forecasts are the demand characteristics over time. These time series data are analysed for forecasting future activity levels. Time series data refer to a set of values of some variables measured at the equally spaced time intervals such as monthly production levels, demands in the market etc.

The demands have following patterns:

(i) Constant Pattern

In this pattern demand remains constant throughout the period.

(ii) Trend Pattern

It refers to the long-term growth or decline in the average level of demand.

(iii) Seasonal Pattern

It refers to the annually repetitive demand fluctuation that may be caused by weather, tradition or other factors.

(iv) Cycle Pattern

Business cycle refers to the large deviation to actual demand values due to complex environmental influences. These are similar to the seasonable components except that seasonality occurs at regular intervals and is of constant durations whereas it varies in both time and duration of occurrence.

(v) Combination of Different Pattern

In long term forecast (more than 2 years) seasonal factors are ignored and focus is given on trend component with a minor emphasis on business cycle. In medium term forecasts (few months to 2 years), the trend factor becomes less important and the seasonal and random factors are given more importance.

A key part of any business plan is the market analysis. This section needs to demonstrate both your expertise in your particular market and the attractiveness of the market from a financial standpoint.

Market Analysis

A market analysis is a quantitative and qualitative assessment of a market. It looks into the size of the market both in volume and in value, the various customer segments and buying patterns, the competition, and the economic environment in terms of barriers to entry and regulation.

How to do a market analysis?

The objectives of the market analysis section of a business plan are to show to investors that:

• You know your market
• The market is large enough to build a sustainable business

In order to do that I recommend the following plan:

• Demographics and Segmentation
• Target Market
• Market Need
• Competition
• Barriers to Entry
• Regulation

The first step of the analysis consists in assessing the size of the market.

1. Demographics and Segmentation

When assessing the size of the market, your approach will depend on the type of business you are selling to investors. If your business plan is for a small shop or a restaurant then you need to take a local approach and try to assess the market around your shop. If you are writing a business plan for a restaurant chain then you need to assess the market a national level.

Depending on your market you might also want to slice it into different segments. This is especially relevant if you or your competitors focus only on certain segments.

(i) Volume & Value

There are two factors you need to look at when assessing the size of a market: the number of potential customers and the value of the market. It is very important to look at both numbers separately, let’s take an example to understand why.

(ii) Potential customer

The definition of a potential customer will depend on your type of business. For example if you are opening a small shop selling office furniture then your market will be all the companies within your delivery range. As in the example above it is likely that most companies would have only one person in charge of purchasing furniture hence you wouldn’t take the size of these businesses in consideration when assessing the number of potential customers. You would however factor it when assessing the value of the market.

(iii) Market value

Estimating the market value is often more difficult than assessing the number of potential customers. The first thing to do is to see if the figure is publicly available as either published by a consultancy firm or by a state body. It is very likely that you will find at least a number on a national level.

If not then you can either buy some market research or try to estimate it yourself.

Methods for building an estimate

There are 2 methods that can be used to build estimates: the bottom up approach or the top down approach.

The bottom up approach consist in building a global number starting with unitary values. In our case the number of potential clients multiplied by an average transaction value.

Let’s keep our office furniture example and try to estimate the value of the ‘desk’ segment. We would first factor in the size of the businesses in our delivery range in order to come up with the size of the desks park. Then we would try to estimate the renewal rate of the park to get the volume of annual transactions. Finally, we would apply an average price to the annual volume of transactions to get to the estimated market value.

Here is a summary of the steps including where to find the information:

• Size of desks park = number of businesses in delivery area x number of employees (you might want to refine this number based on the sector as not all employees have desks)
• Renewal rate = 1 / useful life of a desk
• Volume of transactions = size of desks park x renewal rate
• Value of 1 transaction = average price of a desk
• Market value = volume of transactions x value of 1 transaction

You should be able to find most of the information for free in this example. You can get the number and size of businesses in your delivery area from the national statistics. Your accountant should be able to give you the useful life of a desk (but you should know it since it is your market!). You can compare the desk prices of other furniture stores in your area. As a side note here: it is always a good idea to ask your competitors for market data (just don’t say you are going to compete with them).

That was the bottom up approach, now let’s look into the top down approach.

The top down approach consist in starting with a global number and reducing it pro-rata. In our case we would start with the value of UK office furniture market which AMA Research estimates to be around £650m and then do a pro-rata on this number using the number of businesses in our delivery area x their number of employees / total number of people employed in the UK. Once again the number of employees would only be a rough proxy given all business don’t have the same furniture requirements.

When coming up with an estimate yourself it is always a good practice to test both the bottom up and top down approaches and to compare the results. If the numbers are too far away then you probably missed something or used the wrong proxy.

Once you have estimated the market size you need to explain to your reader which segment(s) of the market you view as your target market.

2. Target Market

The target market is the type of customers you target within the market. For example if you are selling jewellery you can either be a generalist or decide to focus on the high end or the lower end of the market. This section is relevant when your market has clear segments with different drivers of demand. In my example of jewels, value for money would be one of the drivers of the lower end market whereas exclusivity and prestige would drive the high end.

Now it is time to focus on the more qualitative side of the market analysis by looking at what drives the demand.

3. Market Need

This section is very important as it is where you show your potential investor that you have an intimate knowledge of your market. You know why they buy!

Here you need to get into the details of the drivers of demand for your product or services. One way to look at what a driver is, is to look at takeaway coffee. One of the drivers for coffee is consistency. The coffee one buys in a chain is not necessarily better than the one from the independent coffee shop next door. But if you are not from the area then you don’t know what the independent coffee shop’s coffee is worth. Whereas you know that the coffee from the chain will taste just like in every other shop of this chain. Hence most people on the move buy coffee from chains rather than independent coffee shops.

From a tactical point of view, this section is also where you need to place your competitive edge without mentioning it explicitly. In the following sections of your business plan you are going to talk about your competition and their strengths, weaknesses and market positioning before reaching the Strategy section in which you’ll explain your own market positioning. What you want to do is prepare the reader to embrace your positioning and invest in your company.

To do so you need to highlight in this section some of the drivers that your competition has not been focussing on. A quick example for an independent coffee shop surrounded by coffee chains would be to say that on top of consistency, which is relevant for people on the move, another driver for coffee shop demand is the place itself as what coffee shops sell before most is a place for people to meet. You would then present your competition. And in the Strategy section explain that you will focus on locals looking for a place to meet rather than takeaway coffee and that your differentiating factor will be the authenticity and atmosphere of your local shop.

4. Competition

The aim of this section is to give a fair view of who you are competing against. You need to explain your competitors’ positioning and describe their strengths and weaknesses. You should write this part in parallel with the Competitive Edge part of the Strategy section.

The idea here is to analyse your competitors angle to the market in order to find a weakness that your company will be able to use in its own market positioning.

5. Barriers to Entry

This section is all about answering two questions from your investors:

• What prevents someone from opening a shop in front of yours and take 50% of your business?
• Having answered the previous question what makes you think you will be successful in trying to enter this market? (start-up only)

As you would have guess barriers to entry are great. Investors love them and there is one reason for this: it protects your business from new competition!

Here are a few examples of barriers to entry:

• Investment (project that require a substantial investment)
• Technology (sophisticated technology a website is not one, knowing how to process uranium is)
• Brand (the huge marketing costs required to get to a certain level of recognition)
• Regulation (licences and concessions in particular)
• Access to resources (exclusivity with suppliers, proprietary resources)
• Access to distribution channels (exclusivity with distributors, proprietary network)
• Location (a shop on Regent’s Street)

The answer to the questions above will be highly dependent on your type of business, your management team and any relations it might have. Therefore it is hard for me to give any general tips about it.

6. Regulation

If regulation is a barrier at entry in your sector then I would advise you to merge this section with the previous one. Otherwise this section should be just a tick the box exercise where you explain the main regulations applicable to your business and which steps you are going to take to remain compliant.

The characteristics of a multidisciplinary team are as follows:

• A multidisciplinary team consists of members that have individual skills and knowledge that can be used collectively for the welfare of a particular project.
• Its work is based on shared principals
• The members learn from their peers who are equipped with some extraordinary skills of their own
• Collaboration and co-creation are the mantras of a multidisciplinary team
• All the different skill, knowledge and know-how complement each member so that they can give their best in a given situation

The advantages of a multidisciplinary team are as follows:

• A multidisciplinary team gives several perspectives for a situation.
• Different backgrounds of the members help them to gain several opinions that can prove beneficial in problem-solving
• It enables all the members to have a thorough discussion as their viewpoints are different
• A multidisciplinary team is self-sufficient as the members have different talents to face every challenge
• Although working is a challenge, but when the members practice active listening, it becomes a communication powerhouse that is equipped to handle the most difficult situations easily.
• A multidisciplinary team is creative by nature. Every member makes a viable contribution with his skill and knowledge, and all this shared knowledge inspires them to go beyond their limitations and find better solutions.
• Team members inspire and motivate everyone in their team so that they become much better
• Diversity is a great tool to create an atmosphere where the members understand and become considerate
• Multidisciplinary teams inspire and encourage innovation
• The goals are clear and specific so that there is no room for confusion
• Encourages cost-effective completion of projects

The disadvantages of a multidisciplinary team are as follows:

• The multidisciplinary team takes too much time in decision making.
• They have too many opinions, and perspectives, and these are points of conflict between them.
• As different members from different departments make up a multidisciplinary team, the comfort level and understanding between the individuals is very less.
• Poor management as everyone is trying to have the upper hand by demoralizing the efforts of others
• Disagreement and confusion are the norms of the day
• The dominant members do not allow the passive ones to work efficiently
• Gathering, storing and imparting information is delayed because some members are difficult to handle
• Communication becomes a challenge as everyone wants to show himself as the right person for the job.
• The difference between members in a multidisciplinary team causes disagreements and can harm the organization as a whole

The marketing function within any organization does not exist in isolation. Therefore it’s important to see how marketing connects with and permeates other functions within the organization. In this next section let’s consider how marketing interacts with research and development, production/operations/logistics, human resources, IT and customer service. Obviously all functions within your organization should point towards the customer i.e. they are customer oriented from the warehouseman that packs the order to the customer service team member who answers any queries you might have. So let’s look at these other functions and their relationship with marketing.

Research and development

Research and development is the engine within an organization which generates new ideas, innovations and creative new products and services. For example cell phone/mobile phone manufacturers are in an industry that is ever changing and developing, and in order to survive manufacturers need to continually research and develop new software and hardware to compete in a very busy marketplace. Think about cell phones that were around three or four years ago which are now completely obsolete. The research and development process delivers new products and is continually innovating.

Innovative products and services usually result from a conscious and purposeful search for innovation opportunities which are found only within a few situations.

Peter Drucker (1999)

Research and development should be driven by the marketing concept. The needs of consumers or potential consumers should be central to any new research and development in order to deliver products that satisfy customer needs (or service of course). The practical research and development is undertaken in central research facilities belonging to companies, universities and sometimes to countries. Marketers would liaise with researchers and engineers in order to make sure that customer needs are represented. Manufacturing processes themselves could also be researched and developed based upon some aspects of the marketing mix. For example logistics (place/distribution/channel) could be researched in order to deliver products more efficiently and effectively to customers.

Production/operations/logistics

As with research and development, the operations, production and logistics functions within business need to work in cooperation with the marketing department.

Operations include many other activities such as warehousing, packaging and distribution. To an extent, operations also includes production and manufacturing, as well as logistics. Production is where goods and services are generated and made. For example an aircraft is manufactured in a factory which is in effect how it is produced i.e. production. Logistics is concerned with getting the product from production or warehousing, to retail or the consumer in the most effective and efficient way. Today logistics would include warehousing, trains, planes and Lorries as well as technology used for real-time tracking.

Obviously marketers need to sell products and services that are currently in stock or can be made within a reasonable time limit. An unworkable scenario for a business is where marketers are attempting to increase sales of a product whereby the product cannot be supplied. Perhaps there is a warehouse full of other products that our marketing campaign is ignoring.

Human resources

Human Resource Management (HRM) is the function within your organization which overlooks recruitment and selection, training, and the professional development of employees. Other related functional responsibilities include well-being, employee motivation, health and safety, performance management, and of course the function holds knowledge regarding the legal aspects of human resources.

So when you become a marketing manager you would use the HR department to help you recruit a marketing assistant for example. They would help you with scoping out the job, a person profile, a job description, and advertising the job. HR would help you to score and assess application forms, and will organise the interviews. They may offer to assist at interview and will support you as you make your job offer. You may also use HR to organise an induction for your new employee. Of course there is the other side of the coin, where HR sometimes has to get tough with underperforming employees. These are the operational roles of HR.

Your human resources Department also have a strategic role. Moving away from traditional personnel management, human resources sees people as a valuable asset to your organization. Say they will assist with a global approach to managing people and help to develop a workplace culture and environment which focuses on mission and values.

They also have an important communications role, and this is one aspect of their function which is most closely related to marketing. For example the HR department may run a staff development programme which needs a newsletter or a presence on your intranet. This is part of your internal marketing effort.

IT (websites, intranets and extranets)

If you’re reading this lesson right now you are already familiar with IT or Information Technology. To define it you need to consider elements such as computer software, information systems, computer hardware (such as the screen you are looking at), and programming languages. For our part is marketers we are concerned with how technology is used to treat information i.e. how we get information, how we process it, how we store the information, and then how we disseminate it again by voice, image or graphics. Obviously this is a huge field but for our part we need to recognise the importance of websites, intranets and extranets to the marketer. So here’s a quick intro.

A website is an electronic object which is placed onto the Internet. Often websites are used by businesses for a number of reasons such as to provide information to customers. So customers can interact with the product, customers can buy a product, more importantly customers begin to build a long-term relationship with the marketing company. Information Technology underpins and supports the basis of Customer Relationship Management (CRM), a term which is investigated in later lessons.

An intranet is an internal website. An intranet is an IT supported process which supplies up-to-date information to employees of the business and other key stakeholders. For example European train operators use an intranet to give up-to-date information about trains to people on the ground supporting customers.

An extranet is an internal website which is extended outside the organization, but it is not a public website. An extranet takes one stage further and provides information directly to customers/distributors/clients. Customers are able to check availability of stock and could check purchase prices for a particular product. For example a car supermarket could check availability of cars from a wholesaler.

Customer service provision

Customer service provision is very much integrated into marketing. As with earlier lessons on what is marketing?, the exchange process, customer satisfaction and the marketing concept, customer service takes the needs of the customer as the central driver. So our customer service function revolves around a series of activities which are designed to facilitate the exchange process by making sure that customers are satisfied.

Think about a time when you had a really good customer service experience. Why were you so impressed or delighted with the customer service? You might have experienced poor customer service. Why was it the case?

Today customer service provision can be located in a central office (in your home country or overseas) or actually in the field where the product is consumed. For example you may call a software manufacturer for some advice and assistance. You may have a billing enquiry. You might even wish to cancel a contract or make changes to it. The customer service provision might be automated, it could be done solely online, or you might speak to a real person especially if you have a complex or technical need. Customer service is supported by IT to make the process of customer support more efficient and effective, and to capture and process data on particular activities. So the marketer needs to make sure that he or she is working with the customer service provision since it is a vital customer interface. The customer service provision may also provide speedy and timely information about new or developing customer needs. For example if you have a promotion which has just been launched you can use the customer service functions to help you check for early signs of success.

Finance department

The marketing department will need to work closely with the finance department to ensure that:

There is an adequate budget to meet the needs for research, promotion and distribution. The finance department has a whole organisation brief to ensure that all the business operates within its financial capabilities. They will want all departments to work within their allocated budgets. Like all departments, marketing may wish to overspend if profitable marketing opportunities emerge over the year. The marketing department is likely to concentrate on sales volume and building market share, while the finance department may be more focused on cash flow, covering costs and paying back investment as quickly as possible.

The channel structure in a primitive culture is virtually nonexistent. The family or tribal group is almost entirely self-sufficient. The group is composed of individuals who are both communal producers and consumers of whatever goods and services can be made available. As economies evolve, people begin to specialize in some aspect of economic activity. They engage in farming, hunting, or fishing, or some other basic craft. Eventually, this specialized skill produces excess products, which they exchange or trade for needed goods that have been produced by others. This exchange process or barter marks the beginning of formal channels of distribution. These early channels involve a series of exchanges between two parties who are producers of one product and consumers of the other.

With the growth of specialization, particularly industrial specialization, and with improvements in methods of transportation and communication, channels of distribution become longer and more complex. Thus, corn grown in Illinois may be processed into corn chips in West Texas, which are then distributed throughout the United States. Or, turkeys raised in Virginia are sent to New York so that they can be shipped to supermarkets in Virginia. Channels do not always make sense.

The channel mechanism also operates for service products. In the case of medical care, the channel mechanism may consist of a local physician, specialists, hospitals, ambulances, laboratories, insurance companies, physical therapists, home care professionals, and so forth. All of these individuals are interdependent, and could not operate successfully without the cooperation and capabilities of all the others.

Based on this relationship, we define a marketing channel as sets of interdependent organizations involved in the process of making a product or service available for use or consumption, as well as providing a payment mechanism for the provider.

This definition implies several important characteristics of the channel. First, the channel consists of institutions, some under the control of the producer and some outside the producer’s control. Yet all must be recognized, selected, and integrated into an efficient channel arrangement.

Second, the channel management process is continuous and requires continuous monitoring and reappraisal. The channel operates 24 hours a day and exists in an environment where change is the norm.

Finally, channels should have certain distribution objectives guiding their activities. The structure and management of the marketing channel is thus in part a function of a firm’s distribution objective. It is also a part of the marketing objectives, especially the need to make an acceptable profit. Channels usually represent the largest costs in marketing a product.

Think back to when you were a kid. Before tablets, smartphones, social media, virtual and augmented reality, and even the internet, things were much simpler – especially for marketers.

In the ‘80s, marketers had only a few channels in which to communicate their messages. Today, it’s more challenging than ever to know where to spend your money and keep a consistent brand message throughout. So how do you choose the marketing channels that are right for your brand?

Stick to your brand message

One of the major challenges brands face is maintaining a consistent brand message across all channels. Choosing the right marketing channel requires you to take a step back and think about your brand’s core message and where your customers absorb information. This is the single most important thing you can do when determining which channels are right for your brand.

Invest in consumer research

It’s easy to say the single most important thing is the brand and to put yourself in your customers’ shoes. But often companies are making assumptions about what they THINK customers want, which may not be reality. Primary and secondary research can give you insights into which channels your target audience is using and more importantly, how they interact with those channels. We dive deeper into methods of research here.

Do it with a purpose

Too often, brands lose sight of their message and end up wasting time and money on marketing that could be more efficiently spent elsewhere. When Pinterest first came on to the scene, for example, marketers hopped on board. But the reality is, unless you’re in the food, home improvement and goods, fitness or fashion industries, Pinterest can be a waste of valuable resources.

Create an omni-channel experience

Every channel demands a unique approach, but it is important to make sure that your brand is communicated consistently across all platforms, and the customer has the same brand experience regardless of the touch point. For example, a television advertisement will have a different strategy than a podcast, but you want them to feel the same way about the brand regardless of where they engage with the brand.

It’s okay to take risks

With so many tried-and-true methods of marketing, it can be daunting to try new media. However, if you don’t stay current or even ahead of media consumption trends, you risk falling behind or even becoming irrelevant.

A great example of this is traditional taxi companies versus the Ubers and Lyfts of the world. Using a mobile-first approach to delivering and marketing a product was a risk that has to this point paid off. Fortunately, the integration of data and digital in today’s environment means that most marketing executions are measurable. Try, learn, evolve.

Flip your marketing mindset

Long gone are the days where you have an idea, produce a product, find a distribution channel, and then market your product to sell it. Startups are now taking their idea, marketing it first, then figuring out the production and distribution once a sales funnel has been established.

• Old “sell what we make” model: build → sell → market

• New collaborative approach: market → sell → build

The way a business is structured depends on a number of factors, including size, geography, resources, departments and lines of business. In many cases, companies create their structure by combining two or more structures, creating a hybrid or matrix structure.

A customized organizational structure can help your business to run more efficiently and increase your productivity. Regardless of how you structure your organization, it’s important to ensure your employees understand how the organizational structure works, to whom they report and who reports to them.

Features of the Hybrid Structure

A matrix or hybrid structure is an organizational model that combines two or more reporting structures. It’s best suited for work environments that are dynamic, as hybrid structures can shift from project to project.

Most commonly, the hybrid structure combines the functional and product organizational structures. A functional structure is where the company is organized by what people do. For example, all marketing personnel are overseen by a marketing manager, and all sales personnel are overseen by a sales manager. In a product organization, the business is divided by lines of business, such as a baby food manufacturer having specific groups for dry snacks, jarred food and toddler meals.

In a hybrid structure, if the baby food manufacturer was establishing a new product line, it could take functional expertise from various groups such as marketing, research and development and sales to create a product launch team. Those employees would report to their functional managers as well as the project manager for the product launch team.

Benefits of Matrix Departmentalization

There are many benefits of the hybrid organization. The main advantage is that working groups get functional expertise from across the organization. The company can share highly skilled resources for different projects, maximizing the value of their employees.

The employees get to work on a variety of projects and broaden their skill sets in addition to learning new processes and systems within the company. This helps them to expand the scope of their careers within the business. In large organizations, employees may work on several projects at a time, further adding to their knowledge base.

Matrix structures are known to create company loyalty, as employees feel more invested in their position in the organization because they are contributing to multiple areas of the business. This also increases productivity and efficiency within the organization.

Disadvantages of Matrix Departmentalization

There are also some disadvantages of hybrid business models. Since employees report to two or more managers, conflicts in scheduling and priorities may arise. If both managers have equal authority, the employee may be pulled in multiple directions. The managers themselves may have a conflict about who holds the most authority and where resources should be directed. Often, the overhead costs for a matrix structure are high because there are more managers than in a functional or product structure.

If the roles and responsibilities of all employees and managers within a matrix structure are not clearly identified and communicated, there can be confusion about the projects on which people should be working. This can lead to a lack of productivity or delays in the schedule. The workload in a matrix organization is generally high, as employees have to complete their functional responsibilities in addition to their project tasks. Employees can burn out or feel overwhelmed by the amount of work they need to do.

Creating a Hybrid Structure for Your Business

When considering a hybrid structure for your business, carefully plan out the responsibilities of each employee and manager. This way, you can ensure there aren’t any redundancies or duplication of tasks. Similarly, you’ll need to ensure that employees don’t become overworked. In addition, it’s important to outline which manager has higher authority in case conflicts arise.