Chapter 5 – The Strategic Role of Information in Sales Management
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Chapter 5
The Strategic Role of Information in Sales Management
Learning Objectives for Chapter 5
Sales managers are both users and generators of information.
• Discuss the differences between market potential, sales potential, sales forecast, and sales
quota.
• Understand the various methods by which sales managers develop sales forecasts.
• Outline the process of setting a sales quota.
• Explain the various types of quotas used in sales management.
• Discuss key approaches to determining sales force size.
• Describe the sales territory design process.
• Understand the importance of sales analysis for managerial decision making.
• Conduct a sales analysis.
Definition of Key Terms in Chapter 5
• Market potential
o Estimate of the possible sales of a commodity, a group of commodities, or a service for an
entire industry in a market during a stated period under ideal conditions.
• Sales potential
o The portion of the market potential that a particular firm can reasonably expect to achieve.
• Sales forecast
o Estimate of the dollar or unit sales for a specified future period.
• Sales quotas
o Sales goals assigned to a marketing unit for use in managing sales efforts.
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• Subjective forecasting methods
o Do not rely primarily on quantitative (empirical) analytical approaches in developing the
forecast.
o User expectations method
▪ Also known as the buyers’ intentions method because it relies on answers from
customers regarding their expected consumption or purchases of the product.
o Sales force composite
▪ Forecasting sales using the opinion of each member of the field sales staff.
o Jury of executive opinion
▪ Formal or informal internal poll of key executives within the selling company in order
to gain their assessment of sales possibilities.
o Delphi technique
▪ Uses an iterative approach with repeated measurement and controlled anonymous
feedback, instead of direct confrontation and debate among the experts preparing the
forecast.
• Objective forecasting methods
o Rely primarily on sophisticated quantitative (empirical) analytical approaches in
developing forecasts.
o Market test
▪ Involves placing a product in several representative geographic areas to see how well it
performs and then projecting that experience to the market as a whole.
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o Time-series analysis
▪ Relies on the analysis of historical data to develop a prediction for the future, with the
relationship between sales and time as the basis of the forecast for the future.
▪ Moving averages
− Relies on the analysis of historical data to develop a prediction for the future,
sometime using an average of several years.
▪ Exponential smoothing
− Type of moving average, but instead of weighting all observation equally,
exponential smoothing weights the most recent observations heaviest.
▪ Decomposition
− Typically applied to monthly or quarterly data where a seasonal pattern is evident
and the manager wishes to forecast sales not only for the year but also for each
period in the year.
o Statistical demand analysis
▪ Attempts to determine the relationship between sales and the important factors
affecting sales to forecast the future.
• Scenario Planning
o Involves asking those preparing the forecast a series of “what–if” questions, where the
“what–ifs” reflect different environmental changes that could occur.
• NAICS or North American Industrial Classification System
o A system that has replaced the former system of Standard Industrial Classification (SIC)
codes.
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• Sales volume quotas
o These quotas emphasize dollar sales or some other aspect of sales volume.
• Activity quotas
o Attempt to recognize the investment nature of a salesperson’s efforts in a letter to a
prospect, the product demonstration, and the arrangement of a display that may not
produce an immediate sale, but may influence a future sale.
• Financial quotas
o Help salespeople to focus on the cost and profit implications of what they sell. Most
commonly used financial measurements are gross margin, net profit, and selling expenses
to determine profitability of product sales.
• Sales force deployment
o Refers to the three interrelated decisions of (1) sales force size or the number of territories,
(2) design of the individual territories, and (3) allocation of the total selling effort to
accounts.
• Breakdown method
o Sales force size is determined by the average salesperson treated as a salesperson unit, and
each salesperson unit is assumed to possess the same productivity potential.
• Workload method
o Sales force size is determined by assuming all sales personnel should shoulder an equal
amount of work, and management estimates the work required to serve the entire market.
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• Incremental method
o Sales force size is determined by assuming sales representatives should be added as long as
the incremental profit produced by their addition exceeds the incremental costs.
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Chapter Outline
I. Using Information in Managerial Decision Making and Planning
II. Introduction to Market Opportunity Analysis
III. Methods of Sales Forecasting
A. Subjective Methods of Forecasting
a. User Expectations
b. Sales Force Composite
c. Jury of Executive Opinion
d. Delphi Technique
B. Objective Methods of Forecasting
a. Market Test
b. Time-Series Analysis
c. Moving Average
d. Exponential Smoothing
e. Decomposition
f. Statistical Demand Analysis
IV. Choosing a Forecasting Method
V. Developing Territory Estimates
VI. Purposes and Characteristics of Sales Quotas
A. Purposes of Quotas
B. Characteristics of a Good Quota
VII. Setting Quotas
A. Types of Quotas
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a. Sales Volume Quotas
b. Activity Quotas
c. Financial Quotas
B. Quota Level
a. Sales Volume Quotas
b. Activity Quotas
c. Financial Quotas
VIII. Determining Sales Force Size
A. Breakdown Method
B. Workload Method
C. Incremental Method
IX. Designing Sales Territories
A. Stages in Sales Territory Design
a. Step 1: Select Basic Control Unit
i. States
ii. Trading Areas
iii. Counties
iv. Metropolitan Statistical Areas (MSAs)
v. Zip Code and Other Areas
b. Step 2: Estimate Market Potential
c. Step 3: Form Tentative Territories
d. Step 4: Preform Workload Analysis
i. Account Analysis
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ii. Criteria for Classifying Accounts
iii. Determine Account Call Rates
iv. Determining Call Frequencies Account by Account
v. Determine Total Workload
e. Step 5: Adjust Tentative Territories
f. Step 6: Assign Salespeople to Territories
X. Sales Analysis for Managerial Decision Making
A. Type of Evaluation System
a. Bases for Comparison
b. Type of Reporting System
B. Sources of Information for Sales Analysis
C. Type of Aggregation of Information to Be Used in Sales Analysis
D. Illustration of a Hierarchical Sales Analysis
a. The Iceberg Principle
b. The Isolate-and-Explode Principle
XI. Summary
XII. Key Terms
XIII. Breakout Questions
XIV. Leadership Challenge: A Quota by Any Other Name
XV. Role-Play: Blue Tern Mills—Part B
XVI. Mini Case: Lasting Impressions
PowerPoint Program—each chapter of the text has been captured in animated PowerPoint slides.
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Chapter Outline with Suggestions
• Putting Information Technology into Perspective
Suggestion: PowerPoint slides 5.1 through 5.4 can be used to give an overview of Chapter 5.
• Using Information in Managerial Decision Making and Planning
Suggestion: Begin with a discussion of the various terms defined in the chapter:
Market potential
Sales potential
Sales forecast
Sales quota
A discussion of market opportunity analysis can be found in PowerPoint slide 5.6. These slides
show the relationship between market potential, sales potential, and sales forecast. You may want to
develop your own diagram to show declining sales potential when the market potential increases. Students
should offer suggestions as to what a company should do in such a situation.
• Introduction to Market Opportunity Analysis
Suggestion: PowerPoint slides 5.8 through 5.14 present the concept of sales forecasting and the various
methods used. Review the techniques used by companies to forecast sales.
a. Users’ Expectations
—Advantages
—Disadvantages
b. Sales Force Composite
—Advantages
—Disadvantages
c. Jury of Executive Opinion
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—Advantages
—Disadvantages
d. Delphi Technique
—Advantages
—Disadvantages
e. Market Test
—Advantages
—Disadvantages
Every month Advertising Age lists products in market test. You may want to refer to a few of these
examples to illustrate the process.
f. Time Series Analysis
Since this method is somewhat technical, you may want to go through several examples in class.
A useful method is to assign application questions and require students to make forecasts using moving
averages, simple regression analysis, and exponential smoothing.
Moving Averages
—Advantages
—Disadvantages
Exponential Smoothing
—Advantages
—Disadvantages
g. Statistical Demand Analysis
A useful approach requires students to identify the factors thought to influence demand for any
product or service which you or the class care to identify.
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• Methods of Sales Forecasting
o Subjective Methods of Forecasting
o Objective Methods of Forecasting
Suggestion: An explanation of choosing a forecasting method is illustrated in PowerPoint slide 5.15.
• Choosing a Forecasting Method
Suggestion: Using territory estimates and other planning tools are explained in PowerPoint slides 5.16
and 5.17.
• Developing Territory Estimates
Suggestion: You can start by defining quotas and reviewing the purposes with PowerPoint slides 5.18
through 5.22. Ask students to describe how market potential, sales forecasts, sales territories, and sales
quotas are tied together.
• Setting Quotas
Suggestion: PowerPoint slides 5.23 through 5.27 identify and explain the three basic types of quotas.
o Types of Quotas
Suggestion: Next, discuss the various methods used to determine sales force size in PowerPoint slides
5.29 and 5.30.
• Determining Sales Force Size
Suggestion: PowerPoint slide 5.31 shows the various steps in the breakdown approach.
o Breakdown Method
Suggestion: PowerPoint slides 5.32 and 5.33 show the various steps in the workload approach.
o Workload Method
Suggestion: Finally, review the incremental approach with slides 5.34 and 5.35.
o Incremental Method
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Suggestion: Start with a definition of “sales territory” as a group of present and potential customers
assigned to a salesperson. Review the benefits of having well-designed territories and discuss how sales
territory design and sales force size are interrelated subjects. Review the process of designing sales
territories using PowerPoint slide 5.36.
o Stages in Sales Territory Design
Suggestion: PowerPoint slides 5.38 through 5.44 will provide a basis for account planning and a
discussion of sales analysis.
• Sales Analysis for Managerial Decision Making
o Type of Evaluation System
o Sources of Information for Sales Analysis
o Type of Aggregation of Information to Be Used in Sales Analysis
o Illustration of a Hierarchical Sales Analysis
Answers to Breakout Questions
1. Here are some guidelines for effective forecasting: