Highlights Case Study

Andy Gruenbaum

February 24, 1998

Issues and Concerns of Highlights Management

1. What should Highlights do with its outside sales staff?

The outside sales representative are no longer responsible for the most sales; the mail campaigns now produce the most sales. Over a 10 year period, the outside representative’s sales volume has fallen from nearly 50% of sales to just over 12% of annual sales. If this decline continues, the importance of the direct sales force will continue to decline. The outside sales force is the most expensive branch of the Highlights sales arm due to the staff’s receipt of higher commissions and their getting first opportunity on closing all company-generated leads. Wise decisions made here could very likely make Highlights a more profitable organization. Management needs to weigh its heritage and its future when it makes this decision.

1. In order to maximize revenue, how should the sales efforts be best distributed?

According to recent statistics, nearly 90% of Highlights sales comes from telemarketing and direct mail. The incredible success of these two areas, and the decline in sales of the outside sales force, has Highlights management looking for ways to be more profitable. Since some of the direct sales people have set up their own telemarketing groups to call on company-generated leads , Highlights needs to consider how best to handle the misdirected genius of their outside sales force. If telemarketing is giving the outside sales force results, should Highlights continue to pay the outside sales people their full commission when they are only deserving the commission of a telemarketer?

Due to regulations within the telemarketing industry and the possible increase in postal rates, Highlights management needs to evaluate where to concentrate their sales efforts. Whatever plan is chosen, the telemarketing regulations and the postage increase need to be taken into account.

1. Should Highlights increase revenue by soliciting advertisers?

Up to this point, Highlights has not had any advertisers. No advertisements “is in line with the educational image.” Advertisements have been considered at various times, but the “educational image” argument has always won. Is now the time for Highlights to consider altering their image slightly to allow the inclusion of advertisements?

1. Should Highlights develop a broader product mix to allow greater productivity for their sales and marketing dollars?

The emergence of educational videos, higher quality children’s television and very affordable computer games has made Highlights product less unique. Management needs to consider how Highlights should approach these challenges. As competition grows more intense, Highlights will not be able to continue to rely on its magazine to generate profit. The exploration of new revenue streams is necessary.

5. Does the present organizational structure address the changing needs of Highlights?

Highlights needs to make sure the organization is focused on the customers. If making changes to the organizational chart will allow Vice Presidents to worry about the company and not their personal kingdom, Highlights should consider the changes. Changes at the organization level might remove some of the territorial games that are being played.

Recommendations/Alternatives

1. Highlights needs to make improvements to the sales force.
   1. Highlights should cut back on its direct sales force. They are of limited effectiveness due to the change in the marketplace over the years. When the sales force was first started, Highlights customers were housewives. However, with the number of women in the workforce increasing, there are fewer and fewer customers available to be contacted during the daytime hours. They should rely much more heavily on the telemarketing group to achieve goals within this segment of the population. The direct sales force should be more reliant on its own abilities rather then on the company’s generosity in providing leads. There is to much overhead here. The managers skimming off of the sales people sales makes the direct sales a very expensive method of gathering a minimum amount of sales.
   2. The direct sales force could be given a set amount of leads per month and rely on referrals to generate the rest of their sales.
   3. The school group could still be very effective as they continue to work with the education area. They are not given leads, so they are not as expensive as the regular direct sales force.
   4. Much more attention should be given to the telemarketing group. Although there is legislation pending that could affect their ability to be successful, this area has shown very steady growth. Fortunately, pending legislation can take years before it is passed and become effective. Even if changes occur within the telemarketing industry, it is such a profitable method of sales that full advantage of it should be taken now. The telemarketers at Highlights could even more successfully increase their percent of sales if they are given earlier access to the company generated sales leads, rather than taking the direct sales forces rejects.
   5. The direct mail campaign has been an incredible success. The direct mail department should be given greater funds to acquire mailing lists. They should seek out other opportunities to increase sales during specified times of the year. They might consider having their solicitations included with other company advertisements which are mailed in bulk to consumers. This department should be rewarded for their successes, and they should be given funds to seek out greater successes.
2. Highlights should add additional product lines besides the magazine.
   1. Highlights has a very respected name within the educational industry. They need to add products to take advantage of their name. They could develop a series of books or magazines for the teenage group, or special emphasis issues that go into greater depth on specific topics. To successfully accomplish this, Highlights needs to commit resources to researching what specific products should be added to the product line.
   2. The company could also license their name out to other education related companies. The name “Highlights” would only be awarded to materials of the highest education quality. Highlights might consider endorsing textbooks for both public schools and home schooling. Additionally, Highlights could allow its name to be attached to VHS videos or computer games. The primary focus would still be on the educational quality of the material.
3. Highlights should add additional methods of sales.
   1. If Highlights adds additional products, the sales force could benefit in some very tangible ways. Unfortunately, the present sales force is not well equipped to take advantage of the changes within America’s homes. If Highlights were to add a “party plan” to their sales mix, they could address some important needs that the present direct sales force is missing.
      1. The parties would be held at night. This would allow the mothers who are working during the day to be successfully contacted.
      2. The addition of new types of educational products (e.g., videos, computer games, books, etc.) would allow for a large amount of products to be presented during the party.
      3. The sales force would be commission only and largely made up of mothers who stayed home or who were looking for additional income. The present sales force, or the sales force that remains after cutbacks, could be used as the point of contact for these people. They would be the recruiters who would monitor and train the new party consultants.
      4. Party plans have been very successful for other products. The combination of the dual incomes available to many families and the limited time spent on educational activities within the family, makes households very likely to spend money on their children and their educational needs.
4. Highlights needs to explore additional methods of income.
   1. Special advertising opportunities will be made available on the front and back inside covers of the magazine. These are very high visibility areas. Yet they are not so intrusive as to incite parents who applaud Highlights for its educational benefits.

Final Recommendations

1. Once Highlights performs research to develop new products, whether in house or by use of licensing agreements, Highlights should develop a plan to introduce the products. The front and back covers of the Highlights magazine would be an excellent place to place these advertisements. Although Highlights would be selling its own products, all products would carry a “Highlights Approved” seal to assure parents and educators of the highest quality.
2. The outside sales force will get no leads from the company, but will be given the additional option of recruiting for parties. Since many of the representatives are only employed part-time, this should not reduce their income substantially. All new products will only be available through the sales force. All non-subscription related leads can be handled by the sales representatives. If inquiries are made about becoming a distributor or hosting a party, the inquiry will be routed through the outside sales force. The leads will be tracked to determine effectiveness of individual representatives. An outside representative will get an override if one of his/her recruits sells products.
3. Licensing opportunities will be pursued with respected names within the educational field. A new position will be created within the organizational structure for a person who will be responsible for developing additional product opportunities. The emphasis will be on quality products that allow Highlights high education standards to be maintained. Special emphasis will be placed on books, textbooks, videos, and educational computer games.
4. The telemarketing group will get the first chance at all leads. Due to this fact, their sales successes should improve. Because they are paid a lower commission than the direct sales reps, the telemarketing group should become much more profitable. Staffing will increase as necessary. In addition to the telemarketers, a staff of inbound phone representatives will need to be hired to handle sales generated from Highlights advertisements.
5. Direct marketing will increase. A bigger budget will allow this department to increase advertising, mailings, and other additional programs to increase circulation. This group has been very successful. Because of this success they should be rewarded with additional staffing and budgeting.
6. To address the problems with collecting for subscriptions over the phone, those who pay with credit cards will get an additional 2 magazines added to their subscriptions. Because no down payment is collected at the time of the sale, this is truly an issue. Collecting payment during the first phone call will save having to make subsequent phone calls. Because of the better quality of leads available to the telemarketing group, calling a customer back will be less productive than selling a new subscription.
7. The organizational chart will be changed.(See attachment) The sales and marketing functions must be under one individual. If multiple individuals are responsible for very similar functions (i.e., marketing and telemarketing), you have intra-company competition and decisions are made out of personal gain rather than betterment of the company. With these two functions under one individual, a unified marketing plan can develop. This plan can guide the entire department rather than a particular faction within the company.
8. School representatives will be given a budget for magazine samples. When this budget is exceeded, they will have it charged against their commission. The school representatives will also have the option of recruiting party consultants. All outside sales representatives will have no lead support. If they are to continue as Highlights representatives, it will be through the use of recruitment and referrals on previously sold leads.
9. Until reviewed further, the commissions of outside representatives for magazine sales will not change. Commissions of new products will be determined by profit potential.