MMGP Post 5 - Original Work Required. Minimum Of 5 Pages Of Content - 24 Hours

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Chapter
22

Managing Personal Communications: Direct and Database Marketing and Personal Selling

Learning Objectives

How can companies conduct direct marketing for competitive advantage?

What are the pros and cons of database marketing?

What decisions do companies face in designing a sales force?

What are the challenges of managing a sales force?

How can salespeople improve their selling, negotiating, and relationship marketing skills?

Direct Marketing

The use of consumer-direct (CD) channels to reach and deliver goods and services to customers without using marketing middlemen

Direct marketers can use a number of channels to reach individual prospects and customers: direct mail, catalog marketing, telemarketing, interactive TV, kiosks, Web sites, and mobile devices. They often seek a measurable response, typically a customer order, through direct-order marketing.

Direct Marketing

Direct mail

Catalog marketing

Telemarketing

Other direct-response marketing

Direct marketing can reach prospects at the moment they want a solicitation and therefore be noticed by more highly interested prospects. It lets marketers test alternate media and messages to find the most cost-effective approach.

Direct marketing also makes the company’s offer and strategy less visible to competitors. Finally, direct marketers can measure responses to their campaigns to decide which have been the most profitable.

Direct-mail marketing means sending an offer, announcement, reminder, or other item to an individual consumer. Using highly selective mailing lists, direct marketers send out millions of mail pieces each year—letters, fliers, foldouts, and other “salespeople with wings.”

In catalog marketing, companies may send full-line merchandise catalogs, specialty consumer catalogs, and business catalogs, usually in print form but also as DVDs or online.

Telemarketing is the use of the telephone and call centers to attract prospects, sell to existing customers, and provide service by taking orders and answering questions. It helps companies increase revenue, reduce selling costs, and improve customer satisfaction. Companies use call centers for inbound telemarketing—receiving calls from customers—and outbound telemarketing—initiating calls to prospects and customers.

Direct marketers use all the major media. Newspapers and magazines carry ads offering books, clothing, appliances, vacations, and other goods and services that individuals can order via toll-free numbers. Radio ads present offers 24 hours a day. Some companies prepare 30- and 60-minute infomercials to combine the selling power of television commercials with the draw of information and entertainment. At-home shopping channels are dedicated to selling goods and services through a toll-free number or via the Internet for delivery within 48 hours.

Constructing a
Direct-mail Campaign

Choose objectives

Choose target markets and prospects

Choose offer elements

Test elements

Measure success: lifetime value

In constructing an effective direct-mail campaign, direct marketers must choose their objectives, target markets and prospects, offer elements, means of testing the campaign, and measures of campaign success.

Objectives Most direct marketers judge a campaign’s success by the response rate, measured in customer orders. Direct mail can also produce prospect leads, strengthen customer relationships, inform and educate customers, remind customers of offers, and reinforce recent customer purchase decisions.

Target Markets and Prospects Most direct marketers apply the RFM (recency, frequency, monetary amount) formula to select customers according to how much time has passed since their last purchase, how many times they have purchased, and how much they have spent since becoming a customer. Marketers also identify prospects on the basis of age, sex, income, education, previous mail-order purchases, and occasion. The company’s best prospects are customers who have bought its products in the past.

Offer Elements The offer strategy has five elements—the product, the offer, the medium, the distribution method, and the creative strategy. The direct-mail marketer also must choose five components of the mailing itself: the outside envelope, sales letter, circular, reply form, and reply envelope. A common direct marketing strategy is to follow up direct mail with an e-mail.

Testing Elements One of the great advantages of direct marketing is the ability to test, under real marketplace conditions, different elements of an offer strategy, such as products, product features, copy platform, mailer type, envelope, prices, or mailing lists. Response rates typically understate a campaign’s long-term impact.

Measuring Campaign Success: Lifetime Value By adding up the planned campaign costs, the direct marketer can determine the needed break-even response rate. This rate must be net of returned merchandise and bad debts. A specific campaign may fail to break even in the short run but can still be profitable in the long run if we factor in customer lifetime value (see Chapter 5) by calculating the average customer longevity, average customer annual expenditure, and average gross margin, minus the average cost of customer acquisition and maintenance (discounted for the opportunity cost of money).

Direct Marketing

Public and ethical issues

Irritation

Unfairness

Deception/fraud

Invasion of privacy

Direct marketers and their customers usually enjoy mutually rewarding relationships. Occasionally, however, a darker side emerges:

Irritation. Many people don’t like hard-sell direct marketing solicitations. Firms have been popping up to help block unwanted junk mail.

Unfairness. Some direct marketers take advantage of impulsive or less sophisticated buyers or prey on the vulnerable, especially the elderly.

Deception and fraud. Some direct marketers design mailers and write copy intended to mislead or exaggerate product size, performance claims, or the “retail price.” The Federal Trade Commission receives thousands of complaints each year about fraudulent investment scams and phony charities.

Invasion of privacy. It seems that almost every time consumers order products by mail or telephone, apply for a credit card, or take out a magazine subscription, their names, addresses, and purchasing behavior may be added to several company databases. As Chapters 3 and 5 discussed, critics worry that marketers may know too much about consumers’ lives and that they may use this knowledge to take unfair advantage.

Customer Databases and Database Marketing

A customer database

An organized collection of comprehensive information about individual customers or prospects that is current, accessible, and actionable for lead generation, lead qualification, sale of a product or service, or maintenance of customer relationships

Customer Databases and Database Marketing

Database marketing

The process of building, maintaining, and using customer databases and other databases (of products, suppliers, or resellers) to contact, transact, and build customer relationships

Customer Databases

Customer database

Transactions
Registration information
Telephone queries
Cookies
Every customer contact
Past purchases
Demographics
Psychographics
Mediagraphics

Business database

Past purchases
Past volumes, prices, and profits
Buyer teams’ names
Contract status
Supplier’s share of customer’s business
Competitive suppliers
Competitive strengths and weaknesses

Many companies confuse a customer mailing list with a customer database. A customer mailing list is simply a set of names, addresses, and telephone numbers. A customer electronic mailing or e-mail list may literally be just names and e-mail addresses. A customer database, however, contains much more information, accumulated through customer transactions, registration information, telephone queries, cookies, and every customer contact.

Customer Databases and Database Marketing

Data warehouse

Captures, queries, and analyzes data to draw inferences about an individual customer’s needs and responses

Data mining

Uses sophisticated statistical and mathematical techniques on data to extract useful information about individuals, trends, and segments

Savvy companies capture information every time a customer contacts any of their departments, whether via purchase, a service call, an online query, or a mail-in rebate card. Banks and credit card companies, telephone companies, catalog marketers, and many other companies have a great deal of information about their customers, including transaction history and enhanced data on age, family size, income, and other demographics.

Customer Databases and Database Marketing

Companies can use their databases in five ways

To identify prospects

To decide which customers get an offer

To deepen customer loyalty

To reactivate customer purchases

To avoid serious customer mistakes

Some observers believe a proprietary database can provide a company with a significant competitive advantage. In general, companies can use their databases in five ways:

1. To identify prospects—Many companies generate sales leads by advertising their product or service and including a response feature, such as a link to a home page, a business reply card, or a toll-free phone number, and building a database from customer responses. The company sorts through the database to identify the best prospects, then contacts them by mail, e-mail, or phone to try to convert them into customers.

2. To decide which customers should receive a particular offer—Companies interested in selling, up-selling, and cross-selling set up criteria describing the ideal target customer for a particular offer. Then they search their customer databases for those who most closely resemble the ideal.

3. To deepen customer loyalty—Companies can build interest and enthusiasm by remembering customer preferences and sending appropriate gifts, discount coupons, and interesting reading material.

4. To reactivate customer purchases—Automatic mailing programs (automatic marketing) can send out birthday or anniversary cards, holiday shopping reminders, or off-season promotions. The database can help the company make attractive or timely offers.

5. To avoid serious customer mistakes—A major bank confessed to a number of mistakes it had made by not using its customer database well.

Customer Databases and Database Marketing

The downside of database marketing

Some situations are just not conducive to database marketing

Building and maintaining a customer database require a large investment

Employees may resist becoming customer-oriented and using the available information

Not all customers want a relationship with the company

The assumptions behind CRM may not always hold true

Having covered the upside of database marketing, we also need to cover the downside (listed on this slide). Five main problems can prevent a firm from effectively using database marketing.

Designing the Sales Force

Types of sales representatives

Deliverer

Order taker

Missionary

Technician

Demand creator

Solution vendor

The original and oldest form of direct marketing is the field sales call. For many firms, sales force performance is critical. The term sales representative covers six positions, ranging from the least to the most creative types of selling:

1. Deliverer—A salesperson whose major task is the delivery of a product (water, fuel, oil).

2. Order taker—An inside order taker (standing behind the counter) or outside order taker (calling on the supermarket manager).

3. Missionary—A salesperson not permitted to take an order but expected rather to build goodwill or educate the actual or potential user (the medical “detailer” representing an ethical pharmaceutical house).

4. Technician—A salesperson with a high level of technical knowledge (the engineering salesperson who is primarily a consultant to client companies).

5. Demand creator—A salesperson who relies on creative methods for selling tangible products (vacuum cleaners, cleaning brushes, household products) or intangibles (insurance, advertising services, or education).

6. Solution vendor—A salesperson whose expertise is solving a customer’s problem, often with a system of the company’s products and services (for example, computer and communications systems).

Designing the Sales Force

Sales force objectives

Sales force strategy

Sales force structure

Sales force size

Sales force compensation

Salespeople are the company’s personal link to its customers. In designing the sales force, the company must develop sales force objectives, strategy, structure, size, and compensation (see Figure 22.1).

Sales Force Objectives and Strategy

Prospecting
Targeting
Communicating
Selling
Servicing
Information gathering
Allocating

In performing their jobs, salespeople complete one or more specific tasks:

Prospecting. Searching for prospects or leads

Targeting. Deciding how to allocate their time among prospects and customers

Communicating. Communicating information about the company’s products and services

Selling. Approaching, presenting, answering questions, overcoming objections, and closing sales

Servicing. Providing various services to the customers—consulting on problems, rendering technical assistance, arranging financing, expediting delivery

Information gathering. Conducting market research and doing intelligence work

Allocating. Deciding which customers will get scarce products during product shortages

Figure 22.1
A Sales Marketing Exchange

Too often marketing and sales are in conflict: the sales force complains marketing isn’t generating enough leads, and marketers complain the sales force isn’t converting them (see Figure 22.2). Improved collaboration and communication between these two can increase revenues and profits.

Sales Force Objectives and Strategy

Selling teamwork

Top management, technical people, customer service representatives, and office staff

Direct (company) sales force
Contractual sales force

Companies must deploy sales forces strategically so they call on the right customers at the right time in the right way, acting as “account managers” who arrange fruitful contact between people in the buying and selling organizations. Selling increasingly calls for teamwork and the support of others, such as top management, especially when national accounts or major sales are at stake; technical people, who supply information and service before, during, and after product purchase; customer service representatives, who provide installation, maintenance, and other services; and office staff, consisting of sales analysts, order expediters, and assistants.

Once the company chooses its strategy, it can use a direct or a contractual sales force. A direct (company) sales force consists of full- or part-time paid employees who work exclusively for the company. Inside sales people conduct business from the office and receive visits from prospective buyers, and field sales people travel and visit customers. A contractual sales force consists of manufacturers’ reps, sales agents, and brokers who earn a commission based on sales.

Sales Force Structure

Four types of sales forces

Strategic market sales force assigned to major accounts

A geographic sales force calling on customers in different territories

A distributor sales force calling on and coaching distributors

An inside sales force marketing and taking orders online and via phone

The sales force strategy also has implications for its structure. A company that sells one product line to one end-using industry with customers in many locations would use a territorial structure. A company that sells many products to many types of customers might need a product or market structure. Some companies need a more complex structure and adopt some combination of four types of sales force: (1) a strategic market sales force assigned to major accounts (see below); (2) a geographic sales force calling on customers in different territories; (3) a distributor sales force calling on and coaching distributors; and (4) an inside sales force marketing and taking orders online and via phone. Established companies need to revise their sales force structures as market and economic conditions change.

Sales Force Size

Workload approach to sales force size

Group customers into size classes according to annual sales volume

Establish desirable call frequencies for each customer class

Multiply the number of accounts in each size class by the corresponding call frequency to arrive at the total workload for the country

Determine the average number of calls a sales representative can make per year

Divide the total annual calls required by the average annual calls made by a sales representative to arrive at the number of sales representatives needed

Sales representatives are one of the company’s most productive and expensive assets. Increasing their number increases both sales and costs. Once the company establishes the number of customers it wants to reach, it can use a workload approach to establish sales force size. This method has five steps listed in this slide.

Sales Force Compensation

Four components of sales force compensation

Fixed amount

Variable amount

Expense allowances

Benefits

Straight salary, straight commission, and combination of two

The company must quantify four components of sales force compensation. The fixed amount, a salary, satisfies the need for income stability. The variable amount, whether commissions, bonus, or profit sharing, serves to stimulate and reward effort.36 Expense allowances enable sales reps to meet the costs of travel and entertaining on the company’s behalf. Benefits, such as paid vacations, sickness or accident benefits, pensions, and health and life insurance, provide security and job satisfaction.

Fixed compensation is common in jobs with a high ratio of nonselling to selling duties and jobs where the selling task is technically complex and requires teamwork. Variable compensation works best where sales are cyclical or depend on individual initiative. Fixed and variable compensation give rise to three basic types of compensation plans--straight salary, straight commission, and combination salary and commission.

Straight-salary plans provide a secure income, encourage reps to complete nonselling activities, and reduce incentive to overstock customers. For the firm, these plans deliver administrative simplicity and lower turnover. Straight-commission plans attract higher performers, provide more motivation, require less supervision, and control

selling costs. On the negative side, they emphasize getting the sale over building the relationship. Combination plans feature the benefits of both plans while limiting their disadvantages. Plans that combine fixed and variable pay link the variable portion to a wide variety of strategic goals.

Managing the Sales Force

Recruiting

Selecting

Training

Supervising

Motivating

Evaluating

Recruiting and Selecting Representatives. At the heart of any successful sales force are appropriately selected representatives. Studies have not always shown a strong relationship between sales performance on one hand and background and experience variables, current status, lifestyle, attitude, personality, and skills on the other. More effective predictors of high performance in sales are composite tests and assessment centers that simulate the working environment and assess applicants in an environment similar to the one in which they would work.

Training and Supervising Sales Representatives. Today’s customers expect salespeople to have deep product knowledge, add ideas to improve operations, and be efficient and reliable. These demands have required companies to make a much greater investment in sales training. New reps may spend a few weeks to several months in training. The median training period is 28 weeks in industrial-products companies, 12 in service companies, and 4 in consumer-products companies. Reps paid mostly on commission generally receive less supervision. Those who are salaried and must cover definite accounts are likely to receive substantial supervision.

Motivating Sales Representatives. The majority of sales representatives require encouragement and special incentives, especially those in the field who encounter daily challenges.47 Most marketers believe that the higher the salesperson’s motivation, the greater the effort and the resulting performance, rewards, and satisfaction—all of which in turn further increase motivation.

Evaluating Sales Representatives. We have been describing the feed-forward aspects of sales supervision—how management communicates what the sales reps should be doing and motivates them to do it. But good feed-forward requires good feedback, which means getting regular information about reps to evaluate their performance.

Sales Rep Productivity

Norms for prospect calls

Companies often specify how much time reps should spend prospecting for new accounts

Using sales time efficiently

Time-and-duty analysis and hour-by-hour breakdowns of activities

Sales technology

The salesperson today has truly gone electronic (tablet, Web site, and social media)

Norms for Prospect Calls. Left to their own devices, many reps will spend most of their time with current customers, who are known quantities. Reps can depend on them for some business, whereas a prospect might never deliver any.

Using Sales Time Efficiently. Companies constantly try to improve sales force productivity. To cut costs, reduce time demands on their outside sales force, and leverage technological innovations, many have increased the size and responsibilities of their inside sales force.

Sales Technology. Not only is sales and inventory information transferred much more quickly, but specific computer-based decision support systems have been created for sales managers and sales representatives.

Motivating Sales Representatives

Intrinsic versus extrinsic rewards
Sales quotas

Marketers reinforce intrinsic and extrinsic rewards of all types. One research study found the employee reward with the highest value was pay, followed by promotion, personal growth, and sense of accomplishment. Least valued were liking and respect, security, and recognition. In other words, salespeople are highly motivated by pay and the chance to get ahead and satisfy their intrinsic needs, and they may be less motivated by compliments and security.

Many companies set annual sales quotas, developed from the annual marketing plan, for dollar sales, unit volume, margin, selling effort or activity, or product type. Compensation is often tied to degree of quota fulfillment. The company first prepares a sales forecast that becomes the basis for planning production, workforce size, and financial requirements. Management then establishes quotas for regions and territories, which typically add up to more than the sales forecast to encourage managers and salespeople to perform at their best. Even if they fail to make their quotas, the company nevertheless may reach its sales forecast.

Evaluating Sales Representatives

Sources of information
Formal evaluation

Sources of Information. The most important source of information about reps is sales reports. Additional information comes through personal observation, salesperson self-reports, customer letters and complaints, customer surveys, and conversations with other reps. Sales reports are divided between activity plans and write-ups of activity results. Sales reps write up completed activities on call reports. They also submit expense reports, new-business reports, lost-business reports, and reports on local business and economic conditions.

Formal Evaluation The sales force’s reports along with other observations supply the raw materials for evaluation. One type of evaluation compares current with past performance. An example is shown in Table 22.1.

Principles of
Personal Selling

SPIN method types of questions

Situation

Problem

Implication

Need-payoff

Reps are taught the SPIN method to build long-term relationships by asking prospects several types of questions:

Situation questions—These ask about facts or explore the buyer’s present situation. For example, “What System are you using to invoice your customers?”

2. Problem questions—These deal with problems, difficulties, and dissatisfactions the buyer is experiencing. For example, “What parts of the system create errors?”

3. Implication questions—These ask about the consequences or effects of a buyer’s problems, difficulties, or dissatisfactions. For example, “How does this problem affect your people’s productivity?”

4. Need-payoff questions—These ask about the value or usefulness of a proposed solution. For example, “How much would you save if our company could help you reduce errors by 80 percent?”

Six Steps in
Effective Selling

Prospecting & qualifying

Preapproach

Presentation & demonstration

Overcoming objections

Closing

Follow-up & maintenance

Prospecting and Qualifying The first step in selling is to identify and qualify prospects. More companies are taking responsibility for finding and qualifying leads so salespeople can use their expensive time doing what they do best: selling.

Preapproach The salesperson needs to learn as much as possible about the prospect company (what it needs, who takes part in the purchase decision) and its buyers (personal characteristics and buying styles). The sales rep must thoroughly understand the purchasing process in terms of who, when, where, how, and why in order to set call objectives: to qualify the prospect, gather information, or make an immediate sale. Another task is to choose the best contact approach—a personal visit, phone call, e-mail, or letter.

Presentation and Demonstration The salesperson tells the product “story” to the buyer, using a features, advantages, benefits, and value (FABV) approach. The pitch to a prospective client must be highly relevant, engaging, and compelling—there is always another company waiting to take that business.

Overcoming Objections Customers typically pose objections. Psychological resistance includes resistance to interference, preference for established supply sources or brands, apathy, reluctance to give up something, unpleasant associations created by the sales rep, predetermined ideas, dislike of making decisions, and a neurotic attitude toward money. Logical resistance might be objections to the price, delivery schedule, or product or company characteristics. To handle these objections, the salesperson maintains a positive approach, asks the buyer to clarify the objection, questions in such a way that the buyer answers his own objection, denies the validity of the objection, or turns it into a reason for buying.

Closing Closing signs from the buyer include physical actions, statements or comments, and questions. Reps can ask for the order, recapitulate the points of agreement, offer to help write up the order, ask whether the buyer wants A or B, get the buyer to make minor choices such as color or size, or indicate what the buyer will lose by not placing the order now. The salesperson might offer specific inducements to close, such as an additional service, an extra quantity, or a token gift.

Follow-up and Maintenance Follow-up and maintenance are necessary to ensure customer satisfaction and repeat business. Immediately after closing, the salesperson should cement any necessary details about delivery time, purchase terms, and other matters important to the customer. He or she should schedule a follow-up call after delivery to ensure proper installation, instruction, and servicing and to detect any problems, assure the buyer of his or her interest, and reduce any cognitive dissonance. The salesperson should develop a maintenance and growth plan for the account.

Relationship Marketing

In many cases the company seeks not an immediate sale but rather a long-term supplier–customer relationship

Today’s customers prefer suppliers who can sell and deliver a coordinated set of products and services to many locations, who can quickly solve problems in different locations, and who can work closely with customer teams to improve products and processes. Salespeople working with key customers must do more than email or call only when they think customers might be ready to place orders. They should get in touch at other times and make useful suggestions about the business to create value. They should monitor key accounts, know customers’ problems, and be ready to serve them in a number of ways, adapting and responding to different customer needs or situations. Relationship marketing is not effective in all situations. But when it is the right strategy and is properly implemented, the organization will focus as much on managing its customers as on managing its products.