Sales Management

The future of sales (II): Let us first understand the nature of sales, and the concept of sales models

OLYMPUS DIGITAL CAMERAFirst, when we talk about selling here, it is not to be understood as in the textbook definition of a sale as the exchange of a certain good in return for another good, typically money.  Instead, it is in the meaning: the process of matching a willing seller with a willing buyer and agreeing on a jointly acceptable price, quantity, quality, and delivery schedule; the subsequent actual exchange is then secondary.

Let us start with the sales process: I will argue that (new) sales is fundamentally a five-stage stage process, which starts with marketing / qualification and ends with a close in the form of a signed contract or a decision by one of the parties to walk away.  The process comes in three versions, a seller-centric version (possibly most common), an intermediary-centric version (typically seen in ship-broking and the market for prime property in central London), and a buyer-centric version (often seen in the market for newly graduated MBA talent from the best US business schools).  See table below for details:

Stage Type I: Seller-centric ​Type II: Intermediary-centric Type III: Buyer-centric​
​1 ​Seller: Market to buyer ​Intermediary: Market to seller side and buyer side, simultaneously ​Buyer: Market to seller
​2 ​Buyer: Select a few candidates to evaluate ​Seller and buyer: Select a few candidates to evaluate ​Seller: Select a few candidates to evaluate
​3 ​Both: Communicate ​All three: Communicate ​​Both: Communicate
​4 ​Both: Negotiate ​All three: Negotiate ​​Both: Negotiate
​5 ​Both: Close ​Seller and buyer: Close ​​Both: Close

Note that the difference between stage 3–communicate and stage 4–negotiate is that the latter tend to involve elements of commitment and exclusivity (though negotiating with multiple parties in parallel is in many cases acceptable).  Note also that I have described the sales process as a highly linear process; at least some sales processes tend to be fairly iterative / circular.

Let us then move on to the concept of sales model, or how the various activities in a sales process are configured.  (This is analogous to the concept of business model in strategy, which is about how the various activities in the value chain are configured.)  Let us look at some typical examples of sales models (including three configuration options: seller-centric vs. buyer-centric, physical vs. electronic communication channels, and price-setting mechanism (or for market-based pricing price discovery)):

Sales model Example Seller-centric, vs. intermediary-centric, vs. buyer-centric Type of communication channel Price-setting mechanism
Account executive-based sales processes KPMG (auditing); McKinsey (strategy advisory firm) Seller-centric Physical Lengthy negotiation
Auctions Sotheby’s, Christie’s (fine art, antiques) Intermediary-centric Physical Auction
Bazaar, mall All retail Intermediary-centric (typically mall owner) Physical Ask price, plus haggling
Broker-based Ship brokers; real estate brokers Intermediary-centric Physical Facilitated negotiation, based on for example appraisal or index
Financial advisory, advising technology SMEs DNB Markets (corporate finance) Intermediary-centric Physical Facilitated negotiation, based on valuation
Financial market places NYSE, NASDAQ Intermediary-centric (the exchange, not the broker) Electronic Matching of bid prices and ask prices in book
Marketing plus reactive sales through electronic channels Marketing services Seller-centric Electronic Lengthy negotiation
Online market places, for products or services eBay, finn.no, mittanbud.no Intermediary-centric Electronic Posted prices, and / or auction
Outbound call centre Netcom (telecom); If (insurance) Seller-centric Physical Posted ask prices
Purchasing portals doffin.no (government purchases), www.finn.no (classified ads) Intermediary-centric or buyer-centric Electronic RfP process
Recruitment drives Recruitment of MBA graduates from good business schools Buyer-centric Physical (Posted) bid price for individual, plus haggling
RfI / RfP processes Government procurement, for example defence equipment; supplier industry to oil and gas Buyer-centric Physical or electronic RfP process
Sales rep-initiated sales processes Microsoft, SAP, IBM (software) Seller-centric Physical Lengthy negotiation
Search (say Google) plus visit to physical or digital shop front Sports equipment; gyms; insurance; automotive Seller-centric Either physical or electronic Posted ask prices

Note that in this context phone is seen as a physical channel, as it is based on voice, which is fundamentally an analogue signal (and a scheduled phone call is besides very similar to a physical meeting).

Why are certain sales models in use in certain industries, other sales models in use in other industries?  For example, why are certain types of sales processes configured as call centres, some as malls, others as auctions, and finally others as RfI / RfP processes?  Furthermore, what sales models will be dominant in the future and why?  The answers to such questions are determined by a numbers of determining factors for sales models, or determinants, that take different values for different companies and different industries.  Understanding these determinants and how they change over time will allow us to partially answer the questions of what is the future of sales, and what sales models will be dominant in the future?

I will in a future blog post examine the main determinants of sales models, how we may expect them to develop over time, and finally, what sales models we can assume will dominate in the future.

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