Personal Selling & Direct Marketing

Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall

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Discussion Questions

The United States is considering the adoption of standards similar to those outlined in the European Union Directive on Data Protection, which states:

• A firm must obtain the permission of the customer to obtain personal information and explain its purpose.
• It must promise not to use it for anything other than the stated purpose without consent.

Do you feel such standards are sufficient? Why or why not? What changes would you make?

Discussion should be interesting, and answers will vary.

Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall

Key Learning Points

The purpose of this chapter is to introduce some of the issues in managing two major direct channels of distribution: personal selling and direct marketing. After reading this chapter, the student will have learned:

• How the sales force fits into the marketing organization

• The major duties of a salesperson

• Managing the sales force in terms of managing sales force performance, designing sales territories, determining sales force size, and assigning salespeople to territories

• Setting sales quotas

• Issues in sales force compensation

• The impact of technology on sales management

• The importance of direct marketing

• The major direct marketing media

• The size of sales forces can be substantial. Pepsico has 36,000 salespeople and drug companies sales forces have been estimated to be about 90,000.
• Many firms devote a lot of resources to their sales forces. The funds spent training, motivating and rewarding the sales force rivals that spent on other channels and types of communications. The cost per call ranges between $158 per call to $224, depending upon the size of the sales force.

• Different titles are used in sales management, depending on the level of the organization.
• Figure 13.1 shows the different titles typically used in a mid-sized sales organization.
• The vice president of marketing or sales heads the sales organization.
• Most of the other titles describe job responsibilities defined by the size of the geographic territory covered (national, regional, and district sales managers).
• The largest part of the organization is made up of the field sales representatives, or reps.

• Sales organizations are often separate and powerful entities within companies. In such firms, marketing is viewed as providing a support function (advertising, selling materials, trade shows) to sales.
• Figure 13.2 shows the organizational structure of Adobe Systems Inc., a computer software company.
• The product marketing group includes product managers responsible for putting together marketing strategies and programs for products such as Acrobat, Photoshop, and Illustrator.
• In this organization, product marketing is different from marketing. Marketing offers support to product managers by planning promotional events, designing trade show displays, and so on.
• The sales organization is also separate from marketing and is responsible not only for calling on corporate customers but also for channel merchandising (handling relationships and other matters with distributors).

There are three kinds of sales organization structures.

• The product/product sales organization sells a product or product line to all markets and often coexists with a product-focused organization. A disadvantage of this structure is that a customer may be called on by several salespeople from the same company.
• An example of the product/product structure appears in Figure 13.3, which shows the organizational structure at one time for Hewlett-Packard’s Medical Products Group (MPG). MPG sells a variety of products. On the right side of the chart is the U.S. Field Operations, with different national sales managers (NSMs) for the different product groups within MPG. The Imaging Systems Division (ISY), which manufactures ultrasound devices for cardiologists and vascular surgeons, has its own sales force and national sales manager, as do the other three product groups. The ISY sales force only sells the products made by that division.

A second sales organization structure is aligned by market segment.

• In this case, the sales force sells the entire product line to customers in the segment. An illustration of this kind of organization is shown in Figure 13.4. MCI’s U.S. marketing operations were organized by geographic market segments (the company is now part of Verizon). In each geographic territory, the sales force is responsible for selling all telecommunications services to the customers.

• A third organizational form is called product/market.
• In this case, the company has a product management structure but the sales force sells all products marketed by a division to a single market.
• An example of this kind of structure is the General Foods dessert division from Chapter one (Figure 1.4). In this example, there are individual product managers for Jell-O Gelatin, Jell-O Pudding Pops, and other products, but the sales force for the desserts division is responsible for selling all of the division’s products to the national supermarket chains.
• Sales force reorganizations can be costly to the company. Xerox’s financial problems in the late 1990s were attributed to a reorganization of the sales force that failed.
• On the other hand, the organization of the sales force may need to change as companies grow, when customers change, or when there is a significant change in industry structure.

National/Key Accounts Organizations

• Many companies have an additional layer of salespeople who deal with the largest accounts. In many firms a few large corporate accounts make up a large percentage of sales, so a higher level of attention to their business makes good sense.
• National account personnel are charged with developing new accounts and maintaining existing ones; the latter is particularly important for long-term relationship building. Key account managers become very familiar with customers’ operations and problems and are in an excellent position to satisfy customers’ needs by helping them develop a strategy for the product in question. In addition, such positions are considered plums in the company and serve as a career goal for the sales force.
• Figure 13.5 shows four common ways to organize the key account sales force. For ease of viewing, this figure is presented in two slides.
• The most common form of organization is for the national key account sales force and the regular sales force to be on the same level organizationally and for both to report to the corporate vice president of sales.

• The ways in which the national account and regional sales teams interact can vary.
• In some cases, the national account team calls on national or international headquarters, whereas the regional salespeople concentrate on the local offices.
• In others, the national account manager acts as a coordinator for the regional team.
• With either kind of arrangement, there are often difficulties dividing up the commissions earned from sales as it is often unclear who contributed the most to the sale.

Multilevel Marketing

• Amway, Mary Kay, Tupperware, Avon, and many other product and service lines are sold using multilevel or network marketing distribution systems. The concept behind the system is simple: people recruit other people, who recruit others, and so on, to sell the products. Part of the commission on each sale is transmitted through the system so that the person at the top of the pyramid can receive substantial income by managing the network.
• The use of the term pyramid is unfortunate because multilevel selling has been linked to illegal pyramid schemes that have bilked people out of their money.
• Although legal and very successful, multilevel marketing systems still have image problems.
• One problem is that some systems force salespeople or distributors to purchase a significant amount of inventory in advance. However, In 1992, the Direct Selling Association adopted a new ethics policy that requires members to buy inventory back from distributors for at least 90 percent of the purchase price.
• Another is that the amount of sales that actually occur is far less than that promised (how many relatives do you have?).
• The riches some people have made rarely accrue to the average distributor.
• Thus many network marketing systems are plagued by high turnover and shattered dreams.
• However, network marketing does offer individuals the opportunity to make extra money and manage their own businesses.
• In the past several years, the industry has tried hard to reverse its negative image.
• Many managers, displaced through corporate downsizing programs have brought an element of professionalism to multilevel marketing. A look at the Inc. 500 shows that many of the fastest-growing small companies in the United States use this kind of distribution system.

A salesperson is rewarded on her or his ability to sell. Less obviously, salespeople are also charged with maintaining and enhancing customer satisfaction with the selling firm and are often rewarded at least partially on that basis. Today, most sales people talk about selling “solutions” to customers or, in other words, solving a customer’s problem.

Discussion Note: A common way of classifying various selling situations is shown on this slide and explained below. It might be beneficial to ask students to identify specific examples of sales positions that fit each selling situation.

• Response selling. The salesperson is basically an order taker. The customer initiates the sale and gives the order to the salesperson. Inbound sales and retail sales clerk positions are good examples.
• Trade selling. This kind of selling includes order taking, but also entails responsibilities such as making sure the stock is adequately displayed on shelves, setting up displays, providing demonstrations, and other activities sometimes called merchandising. Examples include many consumer goods sales reps who call on retail stores, and liquor reps who call on retail and bars.
• Missionary selling. In this kind of selling, the salesperson attempts to influence the decision maker rather than the user or purchasing agent. The missionary salesperson helps the buyer promote the product to internal or external customers. The best example is found in pharmaceutical sales. Other examples include textbook salespeople (who influence the professor to adopt the text).
• Technical selling. In many industries, the salesperson also acts as a technical consultant to the purchaser. For this to be successful, the salesperson must have strong technical training. For example, the Hewlett-Packard salespeople in the Imaging Systems Division must be knowledgeable about the latest developments in ultrasound and other medical imaging technologies. Complex machinery using in manufacturing equipment, especially if custom-designed, would be another example.
• Creative selling. This method involves developing new customers and maintaining old ones by investing a considerable amount of time in understanding buyers’ needs and wants.

Sales Force Performance

A number of internal and external factors contribute to the success of the sales force, as shown here in Figure 13.7

Internal Factors

• The salesperson’s motivation is a basic force behind how much effort he or she devotes to the job and how he or she responds to different kinds of incentives. The sales force is motivated by financial incentives such as commissions on sales, salary guarantees, and bonuses. However, salespeople can also be motivated by sales meetings and contests, education and training, and information about the company and its plans. Different salespeople are motivated by different factors. Some may be motivated by loyalty to the firm.
• Salesperson performance is also affected by aptitude for selling, or natural ability to sell. It is generally thought that some people are born salespeople and others are not. However, this implies that selling skills cannot be taught, which is not true. At the same time, some aspects of aptitude, such as empathy and persuasiveness, cannot be taught easily and do give one person an edge over another.
• Higher levels of job satisfaction are positively correlated with salesperson performance.
• The salesperson also needs to understand both his or her superior’s expectations and the kind of selling that is necessary to be successful. This knowledge is called role perception. For example, if the sales manager expects the salesperson to spend half of his or her time taking care of the stock on the shelves and the salesperson thinks that is a minor part of the job, this mismatch in expectations will lead to lower performance.
• Finally, personal attributes such as gender, attractiveness, education level, and other factors are often related to success in particular industries.

External Factors

• Environmental factors have a major effect on performance. These are derived from the marketing plan described in Chapter 1. Included are:
• Customers. Obviously, changes in customers’ tastes, buying behavior, and their own competitive conditions make the salesperson’s job more difficult.
• Competitors. Tracking the competition is important for successful selling. This involves more than prices (the usual focus of salespeople). It also involves changes in their strategies, financial condition, product line, and other factors.
• The industry environment. Changes in technology, social changes, economic shifts, regulation, and politics affect the job.
• A second set of external characteristics relate to the organization. For example, it is easier to sell if the products are market leaders. Conversely, the market position is affected by the sales force’s efforts. An important factor is the amount of financial resources a company puts into sales efforts, as performance is likely to improve as more money is spent.
• High-quality personnel and a culture that supports personal selling efforts also help. The quality of the sales management also directly affects the performance of the sales force which in turn is affected by the amount of resources the company spends on sales management and the kind of people who occupy key sales management posts.

• Designing sales territories is an important part of sales management.
• Territories that are not balanced in terms of potential sales can be demoralizing to the salespeople assigned to them.
• An insufficient number of territories means salespeople spend too much time traveling and not enough time selling.
• Too many territories means lower income and salespeople fighting over the geographic boundaries.
• If territories are shrunk, reps may wonder how they will meet their ever-increasing quotas with fewer potential customers.
• There are three major, interrelated decisions concerning sales territories:

1. Deciding how many salespeople to have.

2. Designing the territories.

3. Allocating selling effort to the accounts.

Breakdown Method

The breakdown method is a simple method that assumes an average productivity level for each salesperson. The number of salespeople needed can be computed from the following equation: n = s / p

where n equals the number of salespeople needed, s equals the forecasted sales, and p equals the average sales per salesperson.

• Therefore, a company expecting to sell $100 million worth of goods in 2010 with a sales force currently averaging $5 million per salesperson needs 20 people.

Workload Method: Six steps are required to implement this method:

1. Classify all the firm’s customers into categories. Divide the set of customers into three categories, based on the amount of sales for which they account (other criteria could be used as well). Customers classified as A might be the top 25%, B the next 50%, and C the bottom 25%. The assignment could be based on sales potential rather than actual sales.

2. Determine the frequency with which each type of account should be called upon and the necessary length of each call. For example, based on experience and judgment, the following data might be used:

Class A: 12 times/year × 120 minutes/call = 1,440 minutes, or 24 hours

Class B: 6 times/year × 60 minutes/call = 360 minutes, or 6 hours

Class C: 2 times/year × 30 minutes/call = 60 minutes, or 1 hour

3. Calculate the workload necessary to cover the entire market. Assume that there are 200 A customers, 400 B customers, and 200 C customers. Then the total workload necessary would be:

Class A: 200 customers × 24 hours = 4,800 hours

Class B: 400 customers × 6 hours = 2,400 hours

Class C: 200 customers × 1 hour = 200 hours or a total of 7,400 hours.

4. Determine the time available for each salesperson. Assume for this illustration that the typical salesperson works 48 weeks each year (4 weeks of vacation) for 50 hours each week. This gives a total of 2,400 hours per year for selling.

5. Allocate the salesperson’s time by task. As we noted earlier in this chapter, the salesperson has activities other than selling (planning, writing up call reports) that take time. Supposing that selling is only 50 percent of the salesperson’s time, then this implies that 1,200 hours (50 percent × 2,400 hours) can be allocated to selling.

6. Calculate the number of salespeople needed. This is simply the workload of 7,400 hours divided by the 1,200 hours available or 6.17 (rounded to 7) salespeople.

This method is more logically appealing than the breakdown method but it makes several assumptions that may not hold. Different accounts within a class may require different amounts of effort. Also, different salespeople operate with varying amounts of efficiency and can allocate more or less time for traveling, planning, and other activities.

• Based on the information provided, the breakdown method can be used to estimate the overall size of the sales force (n) needed to accomplish the forecast sales levels. Subtracting the current number of sales people from this number yields the number of new hires needed.
• S = 40,000,000 and P = 2,500,000. S / P = 16. As the firm already employs seven people, they need to hire a minimum of 9 new salespeople to achieve the forecast sales level.

Discussion Note: After students have performed their basic calculations, it would be useful to ask them whether they think that an additional nine people are sufficient to achieve the $40,000,000 in sales. Given that the firm will be moving into new geographic markets never before serviced with inexperienced personnel (in terms of the company and product, and perhaps even inexperienced in selling), the expectation that they will average the same amount of sales as experienced reps do now is very unrealistic. If the firm is only willing to hire 9 people, quotas should be adjusted downward for those assigned to the new market. Furthermore, the firm may ultimately feel that it is more beneficial to place experienced reps in the new territory while letting the new reps work with established clients. While this suggestion may seem the best way to utilize limited resources on the part of the firm, the existing sales force would very likely rebel or quit. Why? Aside from the issue of having to uproot their families, breaking into a new territory is very difficult and can take time. Without an existing client base to service, their income will most likely to drastically effected, and existing reps would very likely resent the new hires taking over the customers (and commissions) in the territory to which they were previously assigned. The instructor might wish to ask what adjustments in the compensation plan would be recommended to mitigate these problems (larger salary, earn partial commissions over a period of time on all sales made to former clients, etc.).

Marginal Economic Method

• Basic microeconomics teaches us that we should allocate a resource up to the point where the marginal revenue obtained from an additional unit of the resource equals the marginal cost.
• Suppose that it costs $60,000 to hire a salesperson. Based on this approach, salespeople should be hired as long as they can sell enough to generate $60,001 in contribution margin (much more in sales, depending on the variable margin rate). The $1 in contribution generated was previously unavailable and would go toward covering fixed costs.
• Although this marginal economic method sounds theoretically appealing, it is more difficult to implement than the other two techniques discussed because it is difficult to know what the “marginal” salesperson can generate in sales.
• In addition, the marginal sales volume will decrease as additional salespeople are added because the remaining customers are more difficult to attract or service than those who are already buying your product or service.

Designing Sales Territories

The steps involved in designing sales territories are shown in Figure 13.8.

• Select the control unit or the basic geographic unit that will be used to form the territories. The most common units are (in decreasing size) countries, states, counties, cities/standard metropolitan statistical areas (SMSAs), ZIP codes, and blocks. Obviously, the control unit varies by the kind of product or service.

2. Estimate the market potential in each basic geographic unit. The methods described in Chapter 3 can be used.

3. Form tentative territories. Contiguous geographic units should be combined so as to make the territories equal in market potential. The number of territories should be based on calculations of the appropriate number of salespeople (note that this assumes the assignment of one salesperson per territory).

4. Calculate the workload for each of the tentative territories. The first part of the workload analysis is to determine the distribution of accounts by their size (based on actual revenues, potential, or some other measure). However, in this case the analysis must be done on an account by account basis. Subsequently, each account must be assessed for the amount of time necessary to serve it. A potential account would be allocated more time because more selling effort is needed to create a new account than to maintain an existing one.

5. Adjust the tentative territories. The workload analysis (and any other relevant information) is then used to adjust the initial solution to territory design. Again, adjustments should be contiguous so that salespeople do not waste time traveling through another salesperson’s territory.

6. Assign salespeople to territories. Salespeople have varying abilities and fit better with different kinds of accounts. Some are better at developing new accounts, some are better at maintaining relationships, etc. There are also personal aspects that must be considered. A salesperson who was born and raised on the West Coast may not be interested in moving to the Southeast.

In step four the territory design process, an account planning matrix similar to Figure 11.9 can be useful in prioritizing accounts and determining the effort needed to service each.

Computer analyses for territory design and salesperson assignment are common today. These programs combine sophisticated geographic mapping capabilities with optimization algorithms. Such software is sold by TerrAlign (http://www.terralign.com). TerrAlign:

■ Automatically generates optimal calling plans for the field sales force.

■ Minimizes distance between calls.

■ Calculates call frequency requirements for customers.

■ Balances the weekly calls across customers.

Sales quotas

• Quotas are specific goals that salespeople have to meet.
• They provide an incentive to the sales force and a performance benchmark for management and thus help management evaluate the performance of individual sales representatives.
• Quotas are usually part of the compensation scheme as exceeding quota usually results in bonus compensation.
• Sales Volume Based Quotas - The most common quota is based on sales volume, in dollars or units sold, either in terms of total sales volume or on individual product or product line sales. Monetary quotas are easy to understand but may give extra incentives to sell higher priced items, which may not necessarily produce the most profits.
• Profit Based Quotas normally are stated in terms of profit margins (gross or net). Such quotas steer the salespeople toward the products and services that are the most profitable to the company rather than those that are the highest priced or easiest to sell. A problem is that it is more difficult for the salesperson to know where she or he stands in relation to the quota than when sales volume–based quotas are used.
• Combination Quotas: More companies are basing their quotas on combinations of metrics related to different activities that must be performed by a salesperson as well as sales or profits. Some of these activities include the number of A) customers called on, B) demonstrations made, and C) new accounts established.
• Because the job of the salesperson is moving away from strictly selling to developing and managing long-term customer relationships, quotas are also changing to combinations of traditional measures plus information from customer satisfaction surveys.

Figure 13.11 shows the different components of potential compensation and their objectives. Only “salary” and “commissions” are shown on this slide due to space restrictions.

• The basic form of compensation is normally salary plus commission.
• A commission is a payment based directly on a sale or another activity E.g. a percentage of the dollar value of the sale made).
• Salary: does not vary with sales; a fixed amount paid weekly or semi-monthly.
• Incentive payments are monetary awards for special performance, such as particularly outstanding sales performance ( President’s Circle of the top 1 percent of the salespeople in a company).
• Sales contests are competitions to achieve some short-term goal (e.g., the introduction of a new product).

• Straight Salary compensation is used when management is more interested in long-term goals than simply selling as much volume as possible.
• Other activities such as competitor analysis and market research are valuable investments of time that do not generate revenue so if management wants to encourage such activities, straight salary is more logical than commissions.
• Straight salary also makes sense when products and services have long selling cycles. Airplanes, large construction projects, nuclear power plants, and other products take a long time to sell. In such cases, compensation based largely on commission would not work well.
• Finally, straight salary is often used for new salespeople, who are unlikely to generate substantial sales in the short run. The challenge with compensation schemes based largely on salary is to tie salary increases to performance.

• Straight Commission give salespeople incentives to sell because there is a direct relationship between income and performance. Such a scheme rewards the best performers while underperforming salespeople do not receive as much income.
• Commission schemes are also easy to manage because the payments are tied directly to visible performance.
• Furthermore, commissions can be targeted. For example, new products that are important to the company can be awarded higher commissions than existing products.
• However, straight commission programs give management little control over what the sales force does because each salesperson will try to maximize his or her income in his or her own way. This usually means that activities that do not result directly in a sale are ignored. Such programs can also be discouraging during a period when the company’s products are not selling well.
• Commission-based compensation schemes can be difficult to implement when a national accounts program overlaps with a local sales force. There are often problems allocating the commissions between the relevant parties when a sale is made. Also commission plans become complicated in multichannel systems.
• Finally, straight commission schemes produce fluctuating incomes for the sales force. In practice, there are few straight commission selling jobs. Many are found in the multilevel marketing industry (e.g., Amway, Mary Kay). Furthermore, commission plans can become complicated in multichannel systems.

Combination Plans

• Most compensation schemes combine salary and additional financial incentives (commissions or bonuses).
• These plans provide some incentive to perform nonrevenue activities such as customer service and market research or competitive analysis
• However, the salary provides a secure level of income while the bonus or commission aspect rewards the best performers.

Controlling and Evaluating the Sales Force

• The sales manager must perform some kind of analysis of sales force performance and many objective or quantitative measures can be used. Table 13.1 shows some of the more typical ratios of input and output measures that can be used. There are two types of output measures:

1. Orders. Of importance are the number and size of the orders obtained.

2. Accounts. Typically measured are the number of active, new, lost, prospective, and overdue accounts.

• There are several kinds of input measures including sales calls, time efficiency (how many calls per day the salesperson makes), expenses and time spent on nonselling activities.

• Understanding the process is critical to a better understanding of the results, and therefore provides a blueprint for change. As a result, subjective or qualitative measures are also used to evaluate sales force performance.
• An evaluator uses a rating scale to evaluate each salesperson on the following dimensions:
• Sales. This includes not just sales volume, which can be measured using external metrics, but how well the person is doing with different kinds of accounts and the whole product line.
• Job knowledge. Does the person understand the role of a salesperson in the company? Does the salesperson understand the company’s policies and products?
• Management of the sales territory. This rates how well the salesperson manages his or her time, completes call reports, and so on.
• Customer and company relations. The salesperson must have good relationships with customers and internal personnel (shipping, product management).
• Personal characteristics.

• The successful salesperson is now highly skilled in using technological tools that enable her or him to work with prospective customers in an efficient way to solve problems. These include computers, information systems, and efficient communication links from the field to the home office. Investments in such technology invariably pay off in increased sales and return on investment.
• This reengineering of sales, called virtual selling, has occurred for several reasons:
• The personal selling job has become more complex and it is getting more difficult to make a sale. This is because products in some industries have become more complex (mainly in technology-based industries). The notion of a salesperson trotting around with a product catalogue has virtually disappeared.
• Customers have become more knowledgeable about what they want, but they also need guidance and advice about what products and services would help them the most.
• Corporations are becoming increasingly flat, with fewer middle managers providing product information for more senior managers. Salespeople are thus being called on to provide more information directly to decision makers. This flattening phenomenon is also hitting sales forces.
• Intensifying global competition means more pressure at the point-of-sale as there are more companies competing for the sale.
• Demand for productivity improvements from all parts of the organization, including sales, has increased.

• Ideally, the virtual selling organization would have the features shown in Table 13.2 though few companies are anywhere near achieving all of them. However, many have made substantial progress toward fully automating their sales forces.
• Most of the features shown in Table 13.2 are available through software provided by companies such as salesforce.com and Sage Saleslogix for small companies, and Oracle for large firms.
• Using laptop computers, PDAs, and the Web, salespeople find new sales leads, share information with management and other salespeople, better understand their customers, customize presentations and products for customers, and make the overall selling process more efficient and effective.
• Sales force automation (SFA) can also help companies deliver more value to the customer and is generally considered to be a component of an overall customer relationship management (CRM) strategy. For example, the sales force for a truck manufacturer asks each potential customer what kinds of jobs a new truck will do and what kinds of loads they will be hauling. On a laptop computer, a salesperson can examine maps of the truck routes and determine the grades of the hills along the routes. The salesperson can then recommend the appropriate model and features.
• Special-purpose computer software has also been developed to help salespeople perform standard activities. For example, contact management software tracks different kinds of information, from what happened on the last sales call with a customer to birthdays and other special events.
• For companies with large product lines, order configuration software keeps track of pricing structures and technical specifications so that the field salespeople are always up to date. This frees the rep from having to carry around volumes of literature or memorize large numbers of facts.

Other Innovations

• Sales force management is constantly being scrutinized for new approaches that can increase efficiency and effectiveness.
• AstraZeneca, a London-based pharmaceutical company, is testing an approach that would entice doctors to initiate the sales call. The company installed computers with Internet access and videoconferencing capabilities in the offices of 7,500 physicians in the United States. In exchange for free use of these computers, the doctors agreed to use the system to participate in at least one video call each month with one of the eight pharmaceutical companies sharing the service. Because the call takes place at the doctor’s convenience, it lasts an average of nine minutes, four times longer than a salesperson usually gets. Although the company’s salespeople were concerned that the system would replace them, many doctors requested follow-up visits, so it opened the doors to some doctors who refused to meet with any salesperson.
• Another approach being used is to simply allow doctors to see live medical presentations on the web. Medconference (see Figure 13.12) is a service that brings experts and new findings directly to doctors through the presentation, which also allow the doctors to submit questions by voice or online.

• One of the strongest trends in marketing has been toward increasing use of direct marketing.
• Direct marketing is most often associated with traditional methods such as direct mail (often called junk mail) and telemarketing. However, it also includes Internet-based marketing as well as TV (e.g., “infomercials” and home shopping channels), and teleconferencing.
• Direct marketing includes any method of distribution that gives the customer access to the firm’s products and services without any other intermediaries (generally, direct marketing excludes the sales force) through some form of communications.
• Similar to personal selling, direct marketing is a hybrid of a channel and a communication device.
• Two key parts of the definition of direct marketing are the word interactive and the phrase measurable response. Direct marketing is a one-to-one activity and targets individual people or organizations. In addition, it is engaged to deliver a short-run response (much like sales promotion) that is easily measurable by the sponsoring organization.

SLIDE NOTE: The figures in Table 13.13 are in billions of dollars. Some media categories are not included due to lack of space.

Discussion Note: Of all direct marketing media, only newspapers and consumer telephone marketing show negative compound annual growth rates. It might be beneficial to ask students why they think this has occurred. The decline in popularity and readership of newspapers is certainly part of the reason. The DNC and growing prevalence of answering machines and caller ID technology most likely account for the decline in telephone marketing to consumers.

Lecture Notes:

• Direct-marketing-driven sales are incremental sales to the industry or region that would not exist but for the successful use of direct-marketing advertising communications.
• Direct-marketing-driven sales grew 5.7% per year from 2003 to 2009 and are projected to grow by 5.3 percent from 2009 through 2013.

Why has there been such an increase in the use of direct response methods?

• First, in an era where cost control is of paramount importance, direct marketing can be used to make the channel system more efficient. For example, direct mail can be used to reach prospects that would be too expensive to reach with a sales force because of their disparate geographic locations or low purchase rates.
• Second, an effective direct-marketing operation relies heavily on an excellent database and companies have been making significant investments in such databases. Improvements in computer technology and data mining software have made it easier to use direct marketing and have resulted in greater efficiency in this channel and higher profits.

More detailed demographic information on those who order by phone and mail is shown in Table 13.4.

As can be seen, about 30 percent of households earning more than $100,000 bought a product or service using either mail or phone during the period of the data (as of spring 2008).

Developing a direct-marketing campaign entails a systematic approach with the following steps:

• Set an objective. Because of the measurability of direct-marketing campaigns, you need to set a quantitative goal in terms of sales, number of new customers, and so on.
• Determine the target market. A direct-marketing campaign requires that you determine which customers are the targets. Most direct-marketing methods are too expensive to use a “shotgun” approach.
• Choose the medium/media. There are a variety of media from which you can select for the campaign. The pros and cons of the major types will be discussed later in this chapter.
• Obtain a list. Because of the targeted nature of direct marketing, a list of members of the targeted customers is required. Sources of lists include internal lists from customer records and externally purchased lists. The cost of renting a mailing or e-mail list is about $110 to $125 per 1,000 names.
• Analyze the list. For companies that keep accurate internal records of customer purchasing behavior, significant effort is made to constantly analyze their lists to see who are the best prospects for the target audience. This is a major priority, particularly for catalogue companies such as Lands’ End. A popular model that has been used for many years is called the R (recency) F (frequency) M (monetary value) model. Companies using this model develop a scoring method for each customer on its internal list, with higher scores given for customers who have most recently purchased, who purchase the most often, and who spend the most.
• Develop the offer. The “offer” is the text of the direct-marketing message. This is obviously tailored to the particular circumstances.
• Test the offer. It is relatively easy and inexpensive to test alternative direct marketing offers. Thus, Lands’ End will often experiment with different catalogues to test different layouts and product mixes. Testing the offer is particularly easy and cheap with direct e-mails.
• Analyze the results. The “bottom line” is, of course, how the campaign performs relative to the objective. It is also important to measure response rate and cost per customer acquired.

Telemarketing:

• Telemarketing works for may firms. A recent survey found that telemarketing had the highest response rate of any direct marketing method (4.4% for in-house lists; 2.9% for purchased lists).
• Telemarketing offers can be tailored to the customer.
• It is expensive ($1-3 per message), intrusive, and generates negative publicity and bad will.
• The three keys to successful telemarketing are list, the offer, and integrity are keys to successful telemarketing.

Direct Mail:

• Cheaper than telemarketing ($0.75 to $2 per message) and less intrusive. Direct mail does not generate bad will like telemarketing does.
• Easy for consumer to ignore and it is difficult to reach B2B customers.
• Average response rate = 2%.
• Copy and layout/design contribute to success; longer copy is better. Format is important.

Direct E-mail:

Inexpensive, creatively flexible, easy to test/track.

SPAM is prevalent; response rates are low, many commercial services and businesses block messages using filters.

• Catalogues are a subset of direct mail.
• More than 15 billion catalogues were mailed in the US in 2009. Only 1.3% resulted in a sale.
• However, catalogues still generate sales, AND they drive people to websites.

Direct E-mail:

• Inexpensive ($0.20 per message, including creative and list costs, but only$.005 to deliver)
• Creatively flexible (text, HTML, Video and audio)
• Easy to test and track results
• Can be integrated into a customer relationship program
• SPAM is prevalent
• Response rates are low (2-3%)
  Many commercial services and businesses block messages using filters.

• Table 13.5 compares direct e-mail to FSIs (free-standing inserts), direct mail, catalogues, and telemarketing in terms of response rates, costs, revenues, and return on investment (ROI) index (the ratio of the revenue per contact to the cost).
• Telemarketing has the highest ROI index because even though it has much higher costs than the others, it has the highest average revenue per contact which offsets the costs.
• However, direct e-mails and direct mail are not far behind. Trailing badly are catalogues and FSIs.
• Catalogues suffer not so much from the response rate but the high costs and relatively low revenues obtained per mailing.

• Telemarketing and e-mail have received the most attention from regulators.
• In the U.S., the Federal Trade Commission has established a national “do not call” registry, where consumers can supply their home and cell phone numbers and indicate their wish not to be disturbed (www.donotcall.gov).
• In some states, telemarketers ignoring this registry can be fined up to $11,000.
• An interesting by-product of the do not call registry, however, is that it makes the people left for telemarketers more productive customers. The response rates for telemarketing have been increasing over the past several years, despite a shrinking base, because those left do not mind talking to people from call centers.
• A livelier battle is shaping up over Internet privacy as people dislike spam even more than junk mail. A book titled Permission Marketing introduced the notion that marketers would receive greater response rates to direct e-mails if they sent them only to customers who had agreed in advance to receive such contact. These are called “opt-in” programs.
• Although there is debate about whether permission should be obtained by customers actively checking a box that indicates they are willing to receive e-mails versus “unchecking” a prechecked box indicating such willingness (“opting out”), the current P3P—or Platform for Privacy Preferences—standard on the Internet mandates that Web sites offer either opportunity to customers.
• Despite these safeguards, most readers undoubtedly still find it much easier to get on an e-mail list than to remove themselves from it.
• A potentially larger battle looms over Internet privacy, including the way companies assemble lists of e-mail addresses and what other information they are sharing.
• Many consumer advocacy groups are concerned about how online companies are assembling their lists for direct e-mails and how much information they have about consumers. As a result, the United States is moving toward the European Union Directive on Data Protection that was established in 1998, which stipulates that:

1. A company must obtain the permission of the customer to obtain personal information and must explain its purpose.

2. It must promise not to use it for anything other than the stated purpose without consent.

Discussion should be interesting, and answers will vary.

Executive Summary

Key learning points in this chapter include the following:

■ The sales force has a dual role in the implementation of the marketing strategy: it is part of both the communication mix and a distribution channel (i.e., a way to give customers access to the product or service).

■ The sales force can be organized in a variety of ways, depending on how product or marketing management is organized. A national or key accounts organization is a layer on top of the usual sales organization that deals with the company’s largest accounts.

■ Both internal (e.g., motivation) and external (e.g., the competitive environment) factors affect a salesperson’s performance.

■ Three important decisions that must be made by the sales manager are the size of the sales force, the design of sales territories, and the assignment of salespeople to the territories.

■ Sales quotas or goals provide key incentives. Quotas are based on sales volume, financial indicators such as profit margins, or activities such as the number of customer calls.

■ The most common form of compensation plan for salespeople is a combination of salary and financial incentives such as bonuses or commissions.

■ Technology is changing the nature of the salesperson’s job, particularly in the use of laptop computers, which enable the representative to make better sales presentations and deliver more value to customers.

■ Direct marketing is becoming an increasingly important direct channel of distribution for many companies.

■ The two most important direct-marketing media are telemarketing and direct mail; direct e-mail is becoming increasingly important.