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BRAND MANAGEMENT AND NEW PRODUCT DEVELOPMENT SECTION 11B Brand Management and the Firm Brands: Pricing Strategies, Tactics, and Laws ALAN L. WHITEBREAD THE PRICE-SETTING PROCESS* • • Estimated demand and its price elasticity • Examine the cost-volume relationship • Examine competitive prices and strategies for comparable and functionally similar products • Set the price schedule PRICE STRATEGIES -COMPETITION BASEDGOING – RATE Based on what competitors are charging EQUAL TO PRODUCT LEADER ALCOA, metals SOLE SOURCE PRICE STRATEGIES -NEW PRODUCT*MARKET PENETRATION Initial low price for volume Wal-Mart MARKET SKIMMING Initial high price followed by price decreases - STAIRSTEP Planned reductions Computers PRICE STRATEGIES -PRODUCT MIXPRODUCT LINE* Steps between items in line Consumer electronics BY-PRODUCT Plastic lumber OPTIONAL PRODUCT* PRODUCT BUNDLE* Auto accessories Season tickets CAPTIVE PRODUCT* PRICE ADJUSTMENT STRATEGIES • Adjusting Prices for a Psychological Effect Psychological Pricing • Price as a Quality Indicator • Reference Prices [buyer’s perspective Clothing] • • Odd & Even • • Price Lining* Prestige Pricing • PSYCHOLOGICAL PRICING Price lining Price $395 Prestige pricing Price per per unit unit $349 Units sold Units sold Demand is inelastic over range: appliances Labor; Chia Pet PRICE ADJUSTMENT STRATEGIES • Adjusting Prices for a Psychological Effect Promotional Pricing • • Loss leader [milk] Temporary reductions • Coupons* PRICE ADJUSTMENT STRATEGIES Geographical Pricing* • Adjusting Prices to Account for the Geographical Location of Customers • Zones (UPS) • FOB PRICE ADJUSTMENT STRATEGIES [PRICE FLEXING] Discount & Allowance Reducing Prices to Reward Customer Responses such as Paying Early or Promoting the Product. Segmented* Adjusting Prices to Allow for Differences in Customers, Products, and Locations. Cash Discount Customer Quantity Discount Product-Form Functional Discount Location* Seasonal Discount Time* Fed Ex Trade-In Allowance Channels* Stanley Promotional Allowance PRICE STRATEGIES -PRICE ADJUSTMENTUNIT PRICING -By size, ounce Detergents COST-PLUS PRICING • PROVIDES A SET MARKUP OR MARGIN – – – – – – – Must understand cost structure in depth Seller perceives price fairness Seller perceives less price competition Unrelated to market conditions No customer orientation $ No confidence in acceptance rate Dangerous volume assumptions QUANTITY Cost in Dollars (millions) BREAK-EVEN ANALYSIS Total Revenue Target Profit ($2 million) 12 10 8 6 4 2 Variable Cost Fixed Cost 200 400 600 800 Sales Volume in Units (thousands) 1,000 Total Cost COMPETITIVE RESPONSE Has Competitor Cut Price? No Hold Current Price; Continue to Monitor Competitor’s Price. Yes Will Lower Price Negatively Affect Our Market Share & Profits? No Reduce Price Yes No Can/ Should Effective Action be Taken? Yes Raise Perceived Quality Improve Quality & Increase Price Launch Low-Price “Fighting Brand” PRICING CHALLENGES • Economic Value-Added [EVA] – After-tax operating profit – capital*cost of capital – Positive number indicates you are increasing shareholder value • • • • Pricing innovative products Pricing in rapidly growing markets Pricing in mature markets Appealing to all four customer price/value segments CONSUMER PRICE/VALUE SEGMENTS High Price Sensitive Segment Pain Value-Seeking Segment Of Expen diture Convenience-Seeking Segment Loyal Segment Low Low High Value of differentiation THE LEGAL SIDE OF PRICING Price Fixing -restraint of trade (Sherman Act 1890) Price Discrimination -Exclusives; Tying (Clayton Act 1914) -resellers (Robinson-Patman Act (1936) ROBINSON-PATMAN ACT [1936] • Case law and code law • Predatory Pricing […per se…] • – • Section 2(a) Price Discrimination [p. 21] – Dealing with purchasing – Different prices to different customers • difficult, potentially illegal – Different prices for different quantities • – Different prices for different customer classes • airlines, seniors, … THE LEGAL SIDE OF PRICING Price Fixing -restraint of trade (Sherman Act 1890) Price Discrimination -exclusive; tying (Clayton Act 1914) -resellers (Robinson-Patman Act (1936) Deceptive Practices BRAND MANAGEMENT AND NEW PRODUCT DEVELOPMENT SECTION 12 Brand Management and the Firm Brands: Integrated Marketing Communications ALAN L. WHITEBREAD INTEGRATED MARKETING COMMUNICATIONS [IMC]* The concept under which the company has careful integration and coordination of all communication channels to deliver a clear, consistent, and compelling message about the organization and / or its products. IMC – COMMUNICATION VEHICLES* MEDIA ADVERTISING COLLATERAL PUBLIC RELATIONS PACKAGING & LABELING DIRECT MARKETING INTERNET ADVERTISING PLACE ADVERTISING IMC [B2B] – GETTING THROUGH THE NOISE! TRADE PROMOTIONS MEDIA ADVERTISING COLLATERAL PUBLIC RELATIONS PACKAGING & LABELING DIRECT MARKETING INTERNET ADVERTISING PLACE ADVERTISING DEVELOPING THE PROMOTION MIX • PUSH STRATEGY – Through channels to consumers Manufacturer Reseller(s) Advertising & promotion Consumers DEVELOPING THE PROMOTION MIX • PULL STRATEGY – To consumers and back through channels Manufacturer Reseller(s) Advertising & promotion Consumers SETTING THE PROMOTION MIX ADVERTISING Any paid form of non-personal advertising by a paid sponsor PROMOTION Short-term incentives to stimulate sales PUBLIC RELATIONS Relating to various publics by utilizing favorable messages SETTING THE PROMOTION MIX ADVERTISING -Extensive reach -Expressive -Impersonal PROMOTION -Incentives to buy -Short-lived PUBLIC RELATIONS -Believable -Effective -Economical SETTING THE IMC BUDGET AFFORDABLE METHOD PERCENT-OFSALES METHOD Total cost basis Revenue basis COMPETITIVEPARITY METHOD OBJECTIVE-&TASK METHOD Meet competition Planned & measured SETTING ADVERTISING OBJECTIVES -An objective for every target market- Informative Advertising* New products Major product changes “Coldwater Tide” Persuasive Advertising “Buy brand X” Comparison Advertising Reminder Advertising Compares Brand A to B Keeps Consumers Thinking About a Product Features & benefits ADVERTISING’S 5 M’S Message* Money* Message generation Factors to consider: Message evaluation and selection Mission Stage in PLC Sales goals Market share and consumer base Advertising objectives Competition and clutter Advertising frequency Product substitutability Message execution Social-responsibility review Measurement Communication impact Media* Reach, frequency, impact Major media types Specific media vehicles Media timing Geographical media allocation Sales impact DEVELOPING EFFECTIVE COMMUNICATIONS Identify target audience[s] Set communication objectives Designing the message[s]* • • Content Emotional, moral, rational • Structure Conclusions, argument type and order • • • • Format Layout, words, sound, language • Source Congruity, expertise, trustworthiness • MESSAGE EXECUTION STYLES* [Advertising appeals] USP Testimonial Evidence Slice of Life Scientific Evidence Lifestyle Technical Expertise Fantasy Personality Symbol Mood or Image (Humor, sex, fear) Musical (Song or theme) DEVELOPING EFFECTIVE COMMUNICATIONS Identify target audience[s] Set communication objectives Designing the message[s] Choosing the media* MEDIA COVERAGE - GOOD D B A C MEDIA COVERAGE - BAD D A B C ADVERTISING CATEGORIES* National (global) brand advertising Retail (local) advertising Directory advertising Business-to-business advertising Institutional advertising Direct response advertising Public service advertising SELECTING ADVERTISING MEDIA 1. Decide on Reach, Frequency, and Impact Step 2. Choosing Among Major Media Types Media Habits of Target Consumers / Segments Nature of the Product Type of Message Cost Step 3. Selecting Specific Media Vehicles Specific Media Within a Given Type, i.e. TV’s ER. Must Balance Media Cost Against Media Factors: Audience Quality & Attention, Editorial Quality Step 4. Deciding on Media Timing Scheduling of Advertising Over the Course of a Year Pattern of Ads: Continuity or Pulsing Media Schedule COLLATERAL MATERIALS • Consumer – – Auto brochures – Catalogs –… • The B2B world is totally different* – http://www.geplastics.com/gep/en/Home/Home/home.html then to • • Literature and tools Solution Area: Products & Services – Industry Applications – http://www2.dupont.com/DuPont_Home/en_US/index.html then to • Plastics – Fluoropolymers – Teflon PFA AD AGENCY Creative Services Develops Campaign’s Strategy for Client Dreams Up and Produces the Ads / Materials Media Planning Determines Effective Communication Vehicles / Media Schedule Collect and Analyze Information to Help Develop a Strategy DEVELOPING EFFECTIVE COMMUNICATIONS Identify target audience[s] Set communication objectives Designing the message[s] Choosing the media Collecting feedback CONSUMER PROMOTION Consumer-Promotion Objectives Consumer-Promotion Tools Increase Short-Term Sales Samples Build Long-Term Market Share Coupons Retailers to Carry New Items Sales Force Support for Current or New Products Consumer Relationship Building Cash Refunds Advertising Specialties Patronage Awards Price Packs Premiums Point-of-Purchase Displays TRADE PROMOTION Retailers and Wholesalers Trade-Promotion Objectives Trade-Promotion Tools Persuade Retailers or Wholesalers to Carry a Brand Price-Offs Premiums Give a Brand Shelf Space Allowances Displays Promote a Brand in Advertising Buy-Back Guarantees Discounts “Push” a Brand to Consumers Free Goods Contests Specialty Advertising Items TRADE PROMOTION Industrial Customers Business-Promotion Objectives Generate Business Leads Stimulate Purchases Reward Customers Motivate Salespeople Business-Promotion Tools Advertising Allowances Initial Stock Buy-Back Displays Discounts or Free Goods Specialty Advertising Programs PUBLIC RELATIONS OBJECTIVES Introducing New Products to Manufacturers Introducing New Products to Consumers Influencing Government Legislation Enhancing the Image of a City, Region, or Country Calling Attention to a Firm’s Involvement with the Community PUBLIC RELATIONS TOOLS Strong PR Firm Press releases / stories (Firm and it products) Public Affairs (Community relations) Development & Miscellaneous DEVELOPING A COMPREHENSIVE IMC PLAN • Complete list of items, timing, and budget for all audiences – Literature schedule – Media schedule – Coverage ratios – Introduction and training – Trade shows – All other items IMC CHALLENGES • • • • • • FLOW TIMING ACCURACY COORDINATION CONTROL MEASUREMENT E-COMMERCE OBJECTIVES • Complement and synergize with all other programs • Clear and concise direction • Consistent approach and image • Extremely user-friendly INTEGRATING E-COMMERCE STRATEGY AND ACTIVITY • In-depth examination of all of the 4-P’s – Be especially sensitive to issues with • Channels • Prices • Promotions • Eliminate or minimize conflicts • Overall integrated approach to the various market segments WEB SITE* • Extremely user friendly – Navigation, graphics, white space – Logically organized – Easy to read [quicky] • • • • Valuable and timely information Interactive Security, tracking, automation Very fast response time BRAND MANAGEMENT AND NEW PRODUCT DEVELOPMENT SECTION 13 Brand Management and the Firm Selling the Project -2 The Business Plan ALAN L. WHITEBREAD BUSINESS PLAN CONTENTS • Executive Overview • Marketing Opportunity – USP, FABs • Product Development – Cost, time, risk analysis, other issues • Go to Market Strategy – • Detailed Financial Analysis PRODUCT DEVELOPMENT • Summary of issues • • Remaining items SUCCESS MEASURES • CUSTOMER / PRODUCT ACCEPTANCE – – – – – Acceptance rate Revenue forecast Unit volume Market share Quality guidelines • FINANCIAL PERFORMANCE – – – – – Product cost Margins Break-even point Time to break-even Profitability • IRR, ROI, NPV, … MARKETING • Customer Analysis – the need, the value, anticipated response • • • • • • Competitive Analysis Company Analysis Market segments and target markets The Marketing Mix Summary of benefits ROLL-OUT PLAN • Detailed introduction to the market – Possibly in stages – Gantt chart[s] • Department agreement • Remaining special concerns THE MARKETING BUDGET Gantt Chart CAMPAIGN TIMELINE: SMALLER COMPANY Week Number RESEARCH Customer/Prospect Research CAMPAIGN CREATION & MANAGEMENT Brainstorming Creation Presentation to Top Execs Meeting and Assignments Ongoing Weekly Status Meetings ADVERTISING: PRINT Create Media Plan (Print and Online) Buy Print Media Design Photography and/or illustration Production Copywriting and Review Final Negatives, Insertion Orders Ship Negatives and Orders to Publications 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 LAUNCH FINANCIAL ANALYSIS • Comprehensive set of financials – Statements • Line item detail • Possible stage evaluation and review – – Human resources – Project analysis • BUDGETING • Top-down or bottom-up approach – – Expected revenues and sources – – Estimated average standard costs – Marketing expenses • Line item detail by area • Implementation • Timing issues and other schedules – Projected pre-tax income PROFIT MEASUREMENTS • Operating profit is defined as the amount of money pre-tax, a company makes from its ongoing business. • Pre-tax profit is the sum of operating profits plus or minus gains and losses from other activities. – Investments, interest expense, royalties, and other financing activities Profit and Loss Statement Cost Category Sales Cost of Goods Gross Profit G&A Operating Profit Non-operating cost (interest expense) Profit before tax Taxes [50%] Profit after tax (000’s) $20,000 (12,500) 7,500 (2,500) 5,000 (1,250) 3,750 (1,875) $1,875 37.5% GM 18.75% CASH FLOW • Cash flows into a company when it receives payment for sales or on receivables, borrows money, sells stock, issues bonds, collects royalties, interest, or some other items. • Cash flows out of a company when it acquires plant and equipment, purchases materials, produces goods, markets goods, repays investors, or repays debt, or spends money on anything. • The finance area is concerned with both the total amount of these flows and their timing. Income Statement and Cash Flows • While the income statement shows a pretax profit of $160,000, the statement of cash flows shows that we would not have enough cash to finance operations if it had to be justified on a fully-loaded cost basis. • Managing cash flows and pre-tax profit are critical for long term survival. FINANCIAL DECISION TOOLS • • • • • Present Value [PV] Discounted Cash Flow [DCF] Future Value [FV] Net Present Value [NPV] Economic Value-Added [EVA] PRESENT VALUE [PV] • The value of a fixed amount n time periods expressed in today’s currency. • Assume you are making $100,000 [$S] per year. Your employer offers you a five-year contract [n=5] that will increase your annual salary to $150,000 per year in the fifth year. Assuming a 9% [r] inflation rate, will this be worth more or less than you are currently making? – The formula is PV = S * [1/[1+r]n] – Build a spreadsheet and calculate the answer. – Did you find that the $150,000 in year five was worth only $97,489.71 in today’s money? DISCOUNTED CASH FLOW [DCF] • This is the process of valuation by finding the present value [PV] of some amount of cash flows at some time in the future. FUTURE VALUE [FV] • The value of a fixed amount n time periods in the future. • Assume you start your career making $35,000 per year [S]. Also assume you never change jobs but keep up with the average rate of inflation [r = 4%] for your entire 42-year career [n=42]. What would you be making when you retired. – The formula is FV = S * [1+rn] – Build a spreadsheet and calculate the answer. – Did you get $181,747.40? Net Present Value • Time-Value-of-Money Concept – $1 today is worth more than $1 in the future • Discounts future cash flows in terms of present value to determine the net value added to the company by a project. • Considers: – Forecasts of revenues and costs – Expected life cycle or products and technology – Industry Trends Net Present Value NPV = PV of future cash inflows – PV of future cash outflows – initial cost • The greater the NPV, the better the investment • Negative NPVs represent projects that do not breakeven ECONOMIC VALUE-ADDED [EVA] • EVA shows you how much money the company makes from operations after taxes, less the cost of capital for the money tied up to make the product. • EVA provides a longer-term perspective on whether a project is generating or destroying value. • EVA provides a more in-depth understanding of a decision than Net Present Value because it also includes the timing of cash flows and the cost of capital tied up in accounts receivable, inventory, and related assets. EVA = Operating Profit – Taxes – [Total Capital Employed * Company’s Cost of Capital] BRAND MANAGEMENT AND NEW PRODUCT DEVELOPMENT SECTION 14 Brand Management and the Firm International Intellectual Property: Protecting Your Brands and Creations ALAN L. WHITEBREAD INTELLECTUAL PROPERTY • The U.S. leads the world in technology—it is something everyone wants. • IP • IP WORLD TRADE ORGANIZATION [WTO] http://www.wto.org/english/thewto_e/thewto_e.htm • ORIGINALLY GATT [1948 – tariffs] • CURRENTLY INVOLVED IN – INTELLECTUAL PROPERTY – – SUBSIDIES • – SAFEGUARDS • WORLD TRADE ORGANIZATION [WTO] http://www.wto.org/english/thewto_e/thewto_e.htm – INFRASTRUCTURE • CHINA: – ACCOUNTING [chose British System 2007] – – DISPUTE RESOLUTION – http://www.wto.org/english/tratop_e/region_e/region_e.htm is map of risk assessment. a INTELLECTUAL PROPERTY & THE MARKETING MIX • PRODUCT DECISIONS – May be dependent upon patents for • Designs • Production processes, … – The brand is often more important than the product itself. • PROMOTION DECISIONS – Slogans, songs, or visual communications that become part of the product image need to be protected. INTELLECTUAL PROPERTY • DISTRIBUTION DECISIONS – Ownership, use, and rights – Who is allowed to do what? – What approval[s] are needed? • PRICING DECISIONS – Driven by competition and the market • IP protection may reduce competition for a limited time. – Price can be used as a weapon to gain share or open up new market segments. Be careful, this can be dangerous. ELEMENTS OF INTELLECTUAL PROPERTY • COPYRIGHT • TRADEMARK • SERVICE MARK • PATENT • • ELEMENTS OF INTELLECTUAL PROPERTY • COPYRIGHT [ © ] – a guarantee of control of an original work – for the original way the idea is expressed – you have no more than six months to claim copyright protection. – any type of • artistic, dramatic, digital, literary or musical work ELEMENTS OF INTELLECTUAL PROPERTY IPO http://www.wipo.org/about-ip/en/trademarks.html • TRADEMARK [ TM ® ] – a guarantee of control of a work of some item used to uniquely identify the product [or service in some countries] – it could be a • word, logo, package design, slogan, or other identifying mark DOMAIN NAMES • Internet addresses [domain names] are bought and sold – sometimes for large amounts of money. • If a domain name infringes on a registered trademark, the domain name will be suspended immediately if challenged by the trademark owner. ELEMENTS OF INTELLECTUAL PROPERTY • SERVICE MARK [ SM ® ] – some item used to uniquely identify a service [available only in some countries] – it could be a • word, logo, package design, slogan, or other identifying mark TRADEMARKS & SERVICE MARKS • Available in approximately 200 of 270 political entities. • There are different filing methods and requirements. • The safe route is – – U.S. CASSIS System for searching marks – See the USPTO website for detailed information. • The level of protection varies by country and trademark treaty signatories. TRADEMARK TREATIES • THE PARIS CONVENTION – extends national resident treatment of US citizens in member nations for patents, trademarks, and service marks. – – The mark must be registered in each country. – You must file for the mark within six months of the U.S. filing date. TRADEMARK TREATIES • THE MADRID AGREEMENT – provides a central filing procedure through the World Intellectual Property Organization [WIPO]. – A central application will be filed and the designated countries will process the application based on local trademark rules. – This requires two filing fees—one for the home country and one for the central filing. The U.S. is not a member. U.S. companies can file as a member if they use a subsidiary in a member country. TRADEMARK SYSTEMS • COMMON LAW – is where trademark rights are acquired through use. – A trademark can not be preregistered. – The first user has the rights to the protection. TRADEMARK SYSTEMS • FIRST TO FILE OR STRICT REGISTRATION – – The rights are awarded only by registration application. – Whoever files first gets the mark protected even though it may never have been used. – Within this group is the “Famous Mark Exception” which, in some countries, protection can be provided based upon international reputation. TRADEMARKS & SERVICE MARKS • Available in approximately 200 of 270 political entities. • A Service Mark [SM] is not permitted in many countries. • Using a registered trade mark symbol [®] is a felony in a few countries. • The EUROPEAN COMMUNITY TRADE MARK ACT [ ] for 15 nations has one filing. TRADEMARK ISSUES • Dilution – occurs when a mark loses its significance in the market. This was first addressed legislatively in the United States in 1995 and is an issue in countries around the world. • Kleenex tissues, Scotch Tape, Xerox[ing], Aspirin, … • Losing your mark – In most countries, the lack of use of the mark over a consecutive three to five year period can make your mark invalid and someone else could claim it. TRADEMARK PROTECTION • EXHAUSTION or “first sale” determines when the trademark owner may or may not have rights -This varies by country -Interstate or intrastate in the U.S. • UNIVERSALITY [or trade identity] states a trademark is not only an identification of the source of a product but remains as a part of the product. • TERRITORIALITY states a trademark holder has the right to control the distribution of the trademarked product. ELEMENTS OF INTELLECTUAL PROPERTY • PATENT – A guarantee of a set of rights to control the use of an invention – Protects the original idea and the way it is implemented [in some countries] – Generally 14-20 years protection based on country and type of patent – Primary Requirements for a Patent • The new invention must be: – Novel • not known or used in the country [sometimes anywhere in the world] and • not published [or sometimes discussed] anywhere – – Non-obvious • cannot be an obvious way to do something, e.g., a simple extension of a principle – Useful • • See Wacky Patents and similar sites for many examples. ELEMENTS OF U.S. INTELLECTUAL PROPERTY • UTILITY PATENT [20 YEARS] – Covers processes, machines, manufacture or composition of matter, plus new and useful improvements – protects the way an article is used and works • DESIGN PATENT [14 YEARS] – Covers the appearance or ornamental design of an article – protects the way an article looks • PLANT PATENT [20 YEARS] – discovered and asexually reproduced a distinct and new variety of plant, other than a tuber propagated plant or a plant found in an uncultivated state MAKING SURE THE PATENT HAS VALUE • DESIGN PATENT – Design patents are frequently of little or no value because they are so limited in what they protect. – They should be written as broadly [i.e., cover as many extensions] as possible [similar to a utility patent] and still have a very good chance of being granted, and be defendable. • UTILITY PATENT – These should be written as broadly [i.e., cover as many extensions] as possible and still have a very good chance of being granted, and be defendable. MAKING SURE THE PATENT HAS VALUE • Employ a specialized patent law firm or a large law firm with full-time specialized patent attorneys. • File for as much protection as possible domestically and internationally. Follow the international patent application sequence. CHALLENGING A PATENT • There are two ways to invalidate some or all of a patent that has been granted. – – • The two most common ways to invalidate a patent are to [1] clearly show there was prior art or [2] prove the examination was faulty. PATENT COOPERATION TREATY See http://www.wipo.int/pct/en/texts/articles/atoc.htm for complete text. • PCT is a procedure for filing patent applications internationally. One filing results in a single search which is accompanied by a written opinion. You can also get a preliminary examination. An full examination required by national law must to done to receive a patent in each application country. • No “international patent” exists. • Find a map of PCT countries on the web. • Find a list of PCT member nations on the web. ELEMENTS OF INTELLECTUAL PROPERTY • TRADE SECRETS – Process(es) • – Controls – Documentation – Security – Awareness – KNOWLEDGE MANAGEMENT • A newly emerging business field of all aspects of knowledge within a firm. – Information – Combined with experience – Context of use – Interpretation – And its place in the context of the firm KNOWLEDGE MANAGEMENT • Intellectual property • Knowledge within the firm – Processes [manufacturing, …] – Systems [order entry, …] – Methods [product testing, …] – Market knowledge • Customer / prospect lists • Databases ELEMENTS OF INTELLECTUAL PROPERTY • NEW HORIZONS [the U.S. is leading the way in most categories] – Software – Sounds • Examples? – Colors • Examples? – Scents • Examples? BRAND MANAGEMENT AND NEW PRODUCT DEVELOPMENT SECTION 15 Brand Management and the Firm Sales: Ethics, Organizations and Integrating Sales Activities ALAN L. WHITEBREAD SALES RESPONSIBILITIES • – Feedback about client developments – Feedback about your company – Feedback about competitors • – Implement the marketing plan – Communicate your company policies and/or positions – Not an agent • SALES RESPONSIBILITIES: INFORMATION DISSEMINATION • TO CUSTOMERS AND PROSPECTS – STANDARD COMMUNICATION – NEW PRODUCTS AND PROGRAMS • TO THE COMPANY – CUSTOMER AND PROSPECT REACTIONS – COMPETITIVE INFORMATION • SIGNIFICANT EVENTS SALES RESPONSIBILITIES: CUSTOMER & PROSPECT CARE • BUILDING A RELATIONSHIP – TRUST – • DELIVERING AS ADVERTISED – INFORMATION – FOLLOW-UP AND FOLLOW-THROUGH – UNDERSTANDING THE SALES FIT IN THE MARKETING ORGANIZATION • • • • • • • • Markets and market segments Target market segments Channels of distribution Types of sales organizations Sales approaches to be used Understanding the sales cycle Understanding sales support Sales trends TYPES OF SALES ORGANIZATIONS* FIELD DIRECT MARKETING DIRECT SALES TELESALES NATIONAL ACCOUNTS DIRECT MAIL RESELLER PARTNERSHIPS CATALOG MANUF. REP’S OEM INTERNET FRANCHISES GOVERNMENT LICENSEES HOUSE JOINT VENTURES Small organizations need to focus on multiplicative sales efforts! Copyright A. Whitebread, 2001-2008. STRATEGIC ALLIANCES MAJOR SALES APPROACHES • TRADITIONAL – Product oriented—profit through sales volume • – Problem-solving—profit through problem solving • – Understand their business—profit through strategic relationships, customer loyalty and satisfaction • TEAM – Integrate organizations—profit through sales volume MANAGING THE PROSPECT FUNNEL AND THE SALES CYCLE MARKETING DEPARTMENT LEADS VS. COLD CALLS PROSPECT EFFECTIVENESS A APPROACH & QUALIFY NEEDS & I PRESENT VALUE DEMONSTRATE FAB REAL, FALSE, STALLS HANDLE OBJECTIONS HOT PROSPECT TRIAL & ACTUAL CLOSE COGNITIVE DISSONANCE SALES TRAINING Copyright A. Whitebread, 2001-2008. QUALIFIED ! CLOSE D CUSTOMER ! A FOLLOW-UP SALES SUPPORT SALES TRENDS • TEAM SELLING TO LARGE ACCOUNTS • TECHNOLOGY AND THE NUMBER OF SALES PERSONNEL – DIRECT SALES – MANUFACTURER’S REPRESENTATIVES – INTEGRATION OF ALTERNATIVE SALES ENTITIES • INSIDE / OUTSIDE SALES FORCE MIX • SALES FORCE AUTOMATION [SFA] SALES MANAGEMENT ISSUES 1. 2. 3. 4. 5. 6. 7. 8. Organization, strategy, and structure Implementation and orchestration Recruiting and selecting Training and developing Compensation Direct, supervise, and motivate individuals Evaluation Retention SALES MANAGEMENT • 1-ORGANIZATION STRATEGY AND STRUCTURE • CHANNELS OF DISTRIBUTION STRONGLY INFLUENCE DECISIONS – Customer / market orientation • • SALES FORCE SUPPORT REQUIREMENTS – Marketing resources, collateral, customer services, … • SALES FORCE STRUCTURE AND SIZE – TERRITORY, PRODUCT, CUSTOMER, COMPLEX TYPES OF SALES FORCES FIELD DIRECT MARKETING DIRECT SALES TELESALES NATIONAL ACCOUNTS DIRECT MAIL RESELLER PARTNERSHIPS CATALOG MANUF. REP’S OEM INTERNET FRANCHISES ALTERNATIVE GOVERNMENT LICENSEES HOUSE JOINT VENTURES Copyright A. Whitebread, 2001-2008. SALES FORCE ORGANIZATION ISSUES SALES TYPE CONTROL FIELD SMALL GROWING / DECLINING COST LEARNING CURVE ? ? ? ? ? DIRECT MKTG. ALTERNATIVE EFFECTIVENESS PRIMARILY SMALL ACCOUNTS ? ? ? ? GEOGRAPHIC STRUCTURE VP Marketing Product Manager Group A Product Manager Group B Eastern Region Sales Manager Western Region Sales Manager Advantages of this structure include 1. 2. Disadvantages to this structure include simple 1. low cost of sales and administration 3. direct customer interaction Marketing Communications Manager 2. no specialization controlling how the sales force spends its time 3. selling all the products PRODUCT STRUCTURE VP Marketing Product Manager Group A Product Manager Group B Advantages of this structure include 1. 2. driven by product purchases specialized sales force knowledge for specialized products 3. helps forecasting and production scheduling Sales Manager Product Group A Sales Manager Product Group B Marketing Communications Manager Disadvantages to this structure include 1. duplication of sales effort selling two very different product groups 2. 3. higher administrative costs problem with accounts wanting to buy both product groups FUNCTIONAL STRUCTURE CEO Marketing and Sales Operations List three advantages to this structure below. 1. 2. 3. Finance and Accounting Information Technology Human Resources List three advantages to this structure below. 1. 2. 3. MARKET / CUSTOMER STRUCTURE VP Marketing Product Manager Group A Product Manager Group B National Sales Manager Major Accounts Manager Marketing Communications Manager National Accounts OEM Accounts Federal Government Advantages of this structure include 1. driven by type of customer and is close to the customer 2. sales management controls field sales and how they spend their time 3. improved feedback throughout the organization Disadvantages to this structure include 1. 2. 3. higher selling and administrative costs multiple sales forces compete for product management’s time account assignment to the appropriate sales organization is critical to the success of this approach COMPLEX STRUCTURE VP Marketing Product Management Group National Sales Manager Direct Sales Managers Reseller Sales Managers Direct Marketing Manager Telesales Manager Advantages of this structure include 1. 2. 3. driven by type of customer and is close to the customer multiple levels of sales skills based on the customer type very difficult for competitive analysis Internet Sales Manager National Accounts Issues of this structure include 1. classification and reclassification of accounts 2. 3. Marketing Communications Manager OEM Accounts Federal Government Disadvantages of this structure include 1. 2. price strategies consistent program implementation Major Accounts Manager 3. requires a lot of coordination Information is widely spread over the organization and hard to consolidate very heavy work load on marketing communications COMPLEX STRUCTURE VP Marketing Product Management Group National Sales Manager Direct Sales Managers Reseller Sales Managers Direct Marketing Manager Telesales Manager Internet Sales Manager National Accounts Major Accounts Manager Marketing Communications Manager OEM Accounts Federal Government THIS BECOMES EVEN MORE COMPLEX WITH -MANUFACTURER’S REPRESENTATIVES -CUSTOMER SERVICES -TECHNICAL SALES SUPPORT - WHERE SHOULD CUSTOMER SERVICES SHOULD REPORT? WHY? INTERNATIONAL STRUCTURE - 1 CEO or VP Marketing North America Central and South America List three advantages to this structure below. 1. 2. 3. Europe, Africa, and the Middle East Asia and the Pacific Export List three disadvantages to this structure below. 1. 2. 3. INTERNATIONAL STRUCTURE - 2 VP Marketing Product Management Group National Sales Manager Direct Marketing Manager Major Accounts Manager Marketing Communications Manager Customer Services Technical Sales Support This is a typical U.S. marketing structure for a large organization. At this size it could look like an international structure at the higher level. This provides you detail of some of the organizational issues larger firms face every day. THE SALES ORGANIZATIONS • 2-IMPLEMENTATION / ORCHESTRATION – – COMMON GOALS – SIMILAR STRATEGIES AND TACTICS – TEAMWORK SALES MANAGEMENT • 3-RECRUITING AND SELECTING • SEARCH AND SEARCH COSTS – % AVERAGE TURNOVER – HOW?—WHERE?—WHO CAN HELP? – • SELECTION PROCESS – TEST FOR SALES APTITUDE AND / OR FIT? » PERSONALITY » PERSEVERANCE – – SALES MANAGEMENT • 3-RECRUITING AND SELECTING-continued • SEEK THOSE WITH GOOD SKILLS – – AS PROMISED AND ON TIME – CRITIQUE CALLS – – PROFESSIONAL COURTESY • SALES MANAGEMENT • 4-TRAINING & DEVELOPING • BASIC SALES SKILLS – PSS OR EQUIVALENT – PRESENTATIONS – • WHY SALES TRAINING? – STRONGER CUSTOMER RELATIONS – IMPROVED MORALE – INCREASED PRODUCTIVITY SALES MANAGEMENT • 4-TRAINING & DEVELOPING-continued • KNOW YOUR CUSTOMERS • TIME MANAGEMENT • TERRITORY MANAGEMENT – TYPES OF ACCOUNTS TYPES OF ACCOUNTS ACCOUNT POSITION STRONG P HIGH O WEAK BASE + GROWTH GROWTH MAXIMIZE EFFORTS T E NEED CLOSE EVALUATION N THE DIRECT MARKETING ISSUE T I WHAT FUTURE ? A L LOW Copyright A. Whitebread, 2001-2008. PROBLEM ! SPEND AS LITTLE TIME AS POSSIBLE SALES MANAGEMENT • 4-TRAINING & DEVELOPING-continued • EXCELLENT PRODUCT & PROGRAM KNOWLEDGE • • BE PRODUCTIVE AND EFFICIENT TIME MANAGEMENT 30% 25% 20% Sales Manager 15% 10% 5% 0% Selling Phone Service Admin Travel SALES MANAGEMENT • 5-COMPENSATION • OBJECTIVES • IS THE SALESPERSON IN CONTROL? • EQUITABLE – SALES MANAGEMENT • 5-COMPENSATION-continued • WHAT IS THE JUSTIFICATION FOR – – – – – – BASE SALARY COMMISSIONS BONUS EXPENSES LEVELS AUTOMOBILE OR ALLOWANCE THE COMPENSATION MIX TO MEET CORPORATE OBJECTIVES SALES MANAGEMENT • 5-COMPENSATION-continued • TYPES OF PLANS – SALARY & TRAVEL PAID » ELECTRONICS – SALARY & BONUS OR COMMISSION & TRAVEL » COMMON – STRAIGHT COMMISSION & TRAVEL » COST MINIMIZATION – STRAIGHT COMMISSION » CORRUGATED, AVON – PLAN DESIGN ISSUES SALES MANAGEMENT • 5-COMPENSATION-continued – PLAN DESIGN ISSUES » Time period month, YTD, cumulative YTD … » Territory size » » SALES MANAGEMENT • 5-COMPENSATION-continued • COST OF SALES ISSUES • CALCULATING THE COST OF SALES – – – – How many prospects? Average number of calls made per day. Average cost of a B-B sales call--$300+ Average cost of a telesales call--$25 est. • UNDERSTANDING THE SALES CYCLE – Length – Key events – COST OF SALES CALCULATIONS • Method 1-Territory Coverage / Workload Approach # prospects * avg. calls to close (avg. calls / day) * 240 * 0.6 • Method 2-Profitability Approach avg. cost / call * avg. calls to close avg. GP margin • Method 3-Available Budget Approach budget / avg. cost of a salesperson DOES NOT INCLUDE THE HIT RATIO. Copyright A. Whitebread, 2001-2008. SALES MANAGEMENT • 6-DIRECT, SUPERVISE, & MOTIVATE INDIVIDUALS – PLANNING AND IMPLEMENTING – FORECASTING • TERRITORY POTENTIAL • SALES – TRACKING & ACCOUNTABILITY SALES MANAGEMENT • 6-DIRECT, SUPERVISE, & MOTIVATE INDIVIDUALS – BUDGETING AND EXPENSE CONTROL – MOTIVATING AND COACHING • TWO DRIVING FORCES – – » HONORS, AWARDS » SALES INCENTIVE PROGRAMS [Trips, gifts] » SALES MEETINGS SALES MANAGEMENT • 7-EVALUATION • THE ROLE OF QUOTAS – OBJECTIVES – DESIRED RESULTS – DETERMINING A FAIR QUOTA – SALES MANAGEMENT • 7-EVALUATION-continued • PROGRESS TO PLAN / QUOTA – GREAT YEAR – BAD YEAR – AGAIN! – GREAT YEAR – BAD YEAR – • TIMLINESS – SALES REPORTS & CALL PLANS – TERRITORY INFORMATION – MEETING ADMINISTRATIVE REQUIREMENTS SALES MANAGEMENT • 7-EVALUATION-continued • ATTITUDE • LEADERSHIP POTENTIAL • CAREER PLANNING – ADVANCE THROUGH SALES – ADVANCE THROUGH MARKETING – DEVELOP LEADERS AND PREVENT TURNOVER SALES MANAGEMENT • 8-RETENTION TURNOVER COSTS – – – – – INTERIM TERRITORY COVERAGE RECRUITING INTERVIEWING & HIRING ACCOUNT INTRODUCTIONS PERSONAL & MOVING EXPENSES GETTING THE SALES ORGANIZATION READY FOR THE LAUNCH • Support materials • Samples • Sales training – Sales calls – Demonstrations • Pre-launch sales