Structure of Sales Organization: Functional, Product Based, Market Based, Territory Based

31/08/2020 0 By indiafreenotes

The organization of a sales department is usually based on the nature and size of the enterprise. No two companies have identical sales organizations, because no two have identical needs. The customers, the marketing channels, the company size, the product or production line, the practices of competitors and to personality and abilities of the personnel and different. This way numerous factors influence the individual sales departments.

The chain of command runs from the top sales executives down through subordinates. All executives exercise line authority, and each subordinate is responsible to one person on the next higher level. Responsibility is definitely fixed, and those charged with it also make decisions and take action.

In the following line organization, sales manager acts as the head of the sales department. In a big organization, he is considered as next to the top authority in the chain of command. Divisional, district, or branch managers are appointed to assist the sales manager in his sales functions. They are accountable to the sales manager directly. Salesmen (local and traveling) are appointed to assist these authorities in the selling activities.

  1. Structure on Product Basis

When a number of products are to be marketed, the departmentalization of sales organization is based on the nature of the products. Each product is assigned to a department under the charge of a manager. For overall supervision, control and coordination, a General Manager (Sales) is appointed.

On product basis itself, two types of departments can be formed:

  • Sales department with line authority subdivided by products (one staff officer for all the products)
  • Sales department subdivided by different sales authority (one staff officer for each product).

In the first case, one line authority and staff organization has been formed for the entire sales organization. The General Manger (Sales) reports to Vice-President in charge of marketing. Six subordinates report to the General Manager (Sales). Staff authority for all the products remains with one person. But separate line authority for each product is appointed, namely sales manager, product ‘A’, and sales manager product ‘B’. Staff authority (specialist) is appointed on the basis of sales functions to be performed.

In the second case, for each product, line and staff authority are appointed separately for each product, because of the complexity and technical nature of the product. But it is not necessary always that for each product same number of staff specialist will be appointed.

Organization Structure on product basis has the following merits and demerits:


(i) Each product gets equal importance in the sales.

(ii) Advantages of specialization and division of work.

(iii) Unnecessary interference in different functions come to an end.

(iv) Easier to assign responsibility to everyone in the sales department.

(v) Comparative evaluation of efficiency of departments is possible.

(vi) The buyers get maximum satisfaction.


(i) Difficulty in coordinating the activities of different products/departments.

(ii) Selling costs tend to be higher if the sales at the estimated level are not reached.

(iii) The operational costs will also be higher because of the larger number of employees.


Departmentalization on the basis of product is suitable where:

(i) The number of products are many,

(ii) The prices of products are much higher to bear the expenses of different departments, and

(iii) The product are of technical nature.

  1. Structure on the Basis of Customers

This type of departmentalization advisable when the nature and types of customers differ. For example, for nature and types of customers differ. For example, for industrial as well as consumer products, different departments can be formed, based on the nature of the departments can be formed, based on the nature of the costumers and the nature of the product.

In this type of structure, the staff authorities (specialist) for all types of customers are similar.


(i) Sufficient attention can be given to every category of customers.

(ii) Maximum services can be provided to the customers to their satisfaction.

(iii) Sales planning and policies can be made keeping in view of each category of customers.

(iv) Salesmen can be appointed keeping in view of the special features of the customers in each category.


(i) The establishment expenses will be too high.

(ii) Controlling and coordination of sales activities create problem.

(iii) Market-oriented structure

(iv) The departmentalization of sales organization may be made on geographical/market basis also. The total sales territory is divided and sub-divided into segments and for each sub­division, a separate sales department is set up. The responsibility of each department is assigned to a Manager. To coordinate and control the activities of respective sub-divisions, a Gen. Manger (sales) is appointed.

  1. Structure on the Basis of Market


(i) Better services can be made available to customers of individual marketing area.

(ii) New product requirements can be identified for each area.

(iii) Transportation cost can be minimized.

(iv) Necessary changes/modification in the products can be suitably made with the specific requirements of a particular market.

(v) Sales plans, policies and marketing efforts can be directed in accordance with the requirements of each market.

(vi) Marketing strategies for each market to deal with competition effectively can be formulated.

(vii) A comparative sales analysis between different zones/territories can be made possible.

(viii) Sales persons with specific qualities, belonging to particular zone, can be appointed keeping in view of the traditions existing in the particular market and can be controlled effectively.


(i) Departmentalization of this type is too expensive.

(ii) It is difficult to coordinate the activities of different markets.

(iii) There are chances of conflicts for resources allocation and other facilities between departments.


Territorial based departmentalization is suitable in the following situation where:

(i) The market territory is so extensive and substantial,

(ii) There are much difference in the characteristics of each market,

(iii) The products can be differentiated in quality according to market-wise, and

(iv) The total sales are much larger.

  1. Structure on the Basis of Functions

In this type of departmentalization, the selling activities are divided according to the functions to be performed, such as, sales planning, management of sales personnel, sales and distribution, advertising and sales promotion, sales analysis, marketing research, etc. In this type of departmentalization, special attention is given to every aspect of the sales activities and, therefore, profits may increase.


(i) Specialization at different levels could be achieved.

(ii) The number of departmentalization may either be reduced or increased according to the needs.

(iii) Decision-making is quick as far as possible.

(iv) Easy to coordinate between sub-functions, with certain exceptions.

(v) Less expensive, compared to other types of departmentalization.


(i) More attention on a particular product cannot be given.

(ii) Functions of sub-departments sometimes get delayed because of their dependence on the other departments.

(iii) Due to increased responsibility on the General Manager (Sales), problem of coordination may arise.

(iv) Problems like non-cooperation, difference of opinion, etc. may exist between departments.

(v) Mal-functioning of a department may affect the efficiency of the organization as a whole.


Organization structure on functional basis is suitable in such situations where:

(i) The size of the organization is small,

(ii) There is only limited number of products, and

(iii) There are not much differences in the techniques of production.

  1. Structure on Combined Basis

Many big business organizations which produce diversified products and having extensive markets use the combined type of sales department. Such a setup is essential for them to get specialization at every stage of marketing activities. Two or more types of departments (products, market or other types are combined together) are usually combined for this purpose.


(i) Careful attention to every need of the sales organization is possible.

(ii) There is advantage of specialization.

(iii) Better coordination is possible between products, sales territories, and sales functions.


(i) Higher operating costs due to excessive specialization.

(ii) Problems of supervision and control on employees of different departments.

(iii) Problem of communication.


The combined type of departmentalization is suitable where:

(i) The size of the sales debarment is so larger

(ii) There are extensive and substantial markets for the product, and

(iii) The company operates with a number of products.

Committee Sales Organization

The committee is never the sole basis for organizing a sales department. It is a method of organizing the executive group for planning and policy formulation; while leaving implementation of plans and policies to individual executives. The committees usually found in sales organizations include training committee, customer relations committee, personnel and merchandising committees, committee on new products, etc.


The use of committees in the sales department has many advantages:

(i) Before policies are made and action is taken, important problems can be deliberated by the committee members and are measured against varied viewpoints.

(ii) Committees promote coordination among members of the executive team.

(iii) Committees render most important service in providing focal points for discussion and for making good suggestions.


There is wastage of time of executives, where the executives are not directly interested in the topics to be considered.