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It is time for us packaged goods salesforces to fundamentally rethink their approach to sales. The best salesforces have traditionally focused on increasing efficiency: cutting costs, fine-tuning geographic and product coverage, and streamlining reporting relationships. Sound, even aggressive, cost management remains important in this slow-growth industry. But while this strategy may have succeeded in holding the line against inflation, in a marketplace where many different players must compete aggressively for the available consumer dollar, it is beginning to show clear signs of diminishing returns, and is distracting senior managers from making the more fundamental changes required. Without completely rethinking their approach at the retail level, there is little room for further cost improvements through greater efficiency.
By far the greatest profit improvement opportunities lie instead in a focus on improving salesforce effectiveness by building capabilities in category, account, and trade promotion management. A number of companies have recognized this and have begun to look to these areas for improvements in performance, with encouraging results. By capitalizing on these capabilities, they hope to increase volume and boost their overall profit performance.
While this new approach is perhaps harder to implement than traditional cost-based measures, it may hold greater promise. The relative scope of the opportunities available from these two approaches is evident when one considers that the average packaged goods company spends over 12 percent of sales on trade promotion, but less than 4 percent on its salesforce costs. Moreover, effectiveness improvements, unlike cost cutting, offer virtually unlimited potential.
However, successfully enhancing effectiveness in account, category, and promotion management requires skills so fundamentally different from those that salesforces have needed in the past, that packaged goods companies have barely begun to get their arms around these new requirements. So far, most have taken some easy steps—starting to gather scanner data and assign taskforces or special departments to look at trade promotion—and they have begun to talk about category management.
Very few companies, however, have taken the tougher steps that will be necessary. Hardly any have changed their hiring criteria to reflect new demands, or invested in training and coaching to the degree necessary to build new skills. Few, if any, have adequately revised their assessment and compensation criteria to align rewards with the new demands, and hold salespeople accountable for meeting them. The few leaders embarking on these steps to improve effectiveness have begun to show promising results in volume and profit performance, but they also recognize how much further they need to go.
This article is based on a McKinsey study of leading packaged goods companies in the United States. We conducted a survey among 41 sales organizations in order to gain insight into industry trends and obtain benchmarks of current salesforce capabilities. The sample included direct salesforces, brokered salesforces, and direct store delivery salesforces, from both food and home-based appliances/household products manufacturers.
The nature of the challenge
Packaged goods salesforces in the United States are operating in an increasingly competitive environment. Manufacturers have to compete with one another, with consumers, and with retailers for their share of a fixed, if not shrinking, pie. Two factors are preventing the pie from growing. First, population growth is slow: only 1 percent per annum. Second, growth in spending in other parts of the economy—health care, for instance—is reducing the amount of disposable income available for the purchase of packaged goods.
Manufacturers are also having a harder time holding on to their piece of the pie, for several reasons. First, other branded goods producers are equally desperate for growth. Virtually all the companies in the survey set targets for significantly higher growth than they had achieved in the past. Second, value-conscious consumers are resisting price increases in an era of low inflation, and are opting for high-quality private label goods instead of brands; there has been a 50 percent increase in the unit share of private label products over the past five years. Finally, retailers are being forced to push back on manufacturers in order to maintain their own narrow margins—typically 3.5 percent for club and grocery, 4 percent for discount drug, and 7.5 percent for mass merchandisers.
These dynamics resulted in weak industry performance. During the five-year period covered by the survey, the average company suffered a decline in unit volume of about 1 percent. Real revenue (adjusted for inflation) rose by only 1.4 percent (compound annual growth rate), and after adjustments for higher trade promotion spending, net revenue rose by a mere 1.1 percent CAGR (Exhibit 1). In fact, only six of the companies we surveyed achieved genuinely unit-driven revenue increases; ten faced falls in revenue, and for the rest, revenue increases were derived purely from price increases.
In spite of this background of unfavorable industry dynamics and poor performance, companies’ expectations of future success have grown even higher. The first sign of these aspirations can be seen in the ambitious targets set by senior managements (Exhibit 2), increasing the pressure on the salesforce to fight for every opportunity to improve volume and profit performance by delivering higher market share and profitability at each account.
To meet the demands made both by their own management and by retailers, salesforces must play a much more complex and challenging role. They are under increasing pressure from their own management to hold the line or reduce trade spending, improve their distribution and shelf position, and deliver higher levels of profit, consumer takeaway, and volume shipped. They have been given additional responsibilities to manage ECR (efficient consumer response) initiatives, multifunctional teams, and account alliances. Further, they are handling an increasingly broad and growing assortment of products with new product introductions increasing at almost 10 percent CAGR.
At the same time, profit pressures are impelling senior management to seek cost reduction across the organization, forcing salesforces to do more with less. Pressure to hold or reduce sales expenditure means that they will continue to contend with constrained resources even as they try to upgrade their skills and keep up their basic coverage tasks.
What are the leaders doing?
Most salesforces are moving ahead to meet these challenges, but not necessarily on as many fronts as they should. Their main efforts are spread over five areas, with some additional findings relevant specifically to managing broker relationships:
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Continuing to look for ways to become more efficient—but not letting this distract them from striving to become more effective.
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Understanding trade spending by managing it at a local level, measuring returns, and moving accountability for key decisions into the field.
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Building capability in category management, beginning by setting objectives for pricing and shelving at the local level.
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Measuring and improving account profitability, using actual account costs.
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Building the organizational infrastructure:
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Ensuring that information systems provide the information needed to make key decisions, rather than simply lots of data.
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Building skills, particularly in trade promotion and category and account management, or finding the right people if skill-building programs fall short.
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Aligning compensation and reward systems to match the new skills expected of the salesforce.
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For companies using brokers rather than direct saleforces, effectiveness is equally crucial and may be achieved partly through specific broker management practices.
Our survey found leaders in each area, and some lessons that can be drawn from their actions, as these six studies illustrate (see the boxed inserts). However, overall excellence in salesforce management involves excelling on many fronts simultaneously. That means adopting best practices in not one but all the key areas of effectiveness that make the difference. 
About the Authors
John DeVincentis is a principal in McKinsey’s Washington, DC office; Lauri Kien Kotcher is a consultant in the New York office.