A Few Thoughts on The Reactionary Sales Model

Talk to any sales manager and they will tell you they want their team to be proactive.  Proactive as in sales calls, targeting, prospecting and product introductions.  Planning and setting detailed customer-centric goals is also viewed as proactive.  Sales managers preach proactivity.  Detailed studies of distributor salespeople, however, reveal a lot of folks who are anything but proactive.  In spite of the directives from their managers, a lot of these guys seem happy in their roles.

Defining Reactionary Sales…

A good many knowledge-based distributor salespeople have quietly slipped into what I call the reactionary sales model.  Here is the premise of their system:

·         The seller becomes engaged with the customer.  Sometimes this is an inherited relationship, other times, it builds gradually over time as the seller proves their worth as a provider of sound advice, support and technical assistance. The seller builds a level of trust and becomes one of those called in to assist in problem solving and solution building.

·         The seller becomes available on demand.  The deeper the relationship, the more available the seller becomes as a source of advice and assistance. It is not uncommon for sellers working in this mode to drop whatever proactive plans they may have developed to run to their customer’s location at a moment’s notice.  This activity is typically rewarded emotionally with appreciative words and with a regular stream of orders.

·         The seller develops deep loyalties with customers.   As loyalty builds, the customer begins moving business to the salesperson’s company and business grows.

Sounds pretty good so far….

But there is more, maybe even vindication.  A recent study of engineers in the OEM side of our business reveals much about the way our industry sells.  Three things are made clear in the study:

1.      Engineers prefer to request information – “don’t call us we’ll call you”.

2.      Once a salesperson is established as a source of information – they call often.

3.      Local and Regional Distributors are viewed as better sources of information than National Chains (something we have always known but didn’t have the data to prove.)

But there are problems…

The story doesn’t end with “they all lived happily ever after” because there are some issues standing in the way of great business.  While time and the nature of this post don’t lend themselves for a detailed study, we should touch on the issues.

·         This model takes time.  Engaging with customers, proving yourself and building trust take time; probably measured in years.  How long can a salesperson wait for business to come? 

·         Distributors lose customers by attrition.  Depending on the expert, between five and ten percent of our customers drop off each year.  We’re not speaking of business lost to competitors; instead customers go out of business, are purchased by another organization or move to another location.  When this happens, it takes a long time for a reactive guy to replenish their customer base.

·         Reactive salespeople are slow to introduce new products and technologies.  When salespeople operate in the reactive mode, they wait for the customer to request information.  Since the customer has someone else providing assistance with the new line of technology, the time to introduce new products is painfully slow (years.)

·         Reactive salespeople struggle to justify which account receives their high quality reactive service.  Oftentimes, reactive salespeople peak out early.  One of the main causes is they run out of time.  This level of service takes time.  If they don’t “justify” their time against customer potential or business volumes, they get consumed by helping accounts which cannot provide the necessary volume to fuel their business.  Since the emotional reward can be high from small accounts, who thank them profusely for their assistance, they struggle to prioritize their time. 

By now the point should be clear, the reactive model works but does not align itself with the goals of most distributors.  Expansion into new product technologies is hampered and organic growth is slow (even if arguably steady.)

Improving the situation…

If your team is overloaded with reactive mode sellers, you must answer this lucky seven list of questions:

1.      How can we speed up the relationship process?  We’ve determined the reactive seller is good once a relationship is built.  But, they need help with jump starting the relationship.

2.      How can we help focus their efforts?  Most sellers don’t track their time, even though CRM Systems are good tools.  If we can help them understand the value of their time, they may refocus energies on accounts with greater potential.

3.      Can we develop tools for introducing new products?  Training is the new marketing.  Are you exploring all the opportunities to increase your training portfolio?

4.      Are add on products well understood?  If the salesperson is assisting the customer with a solution, do they understand the nuances of expanding the products by providing a bigger piece of the solution?

5.      Does the reactive seller know how to leverage existing contacts to expand their customer contact base?  Since the time to build trust and establish a relationship is long, we need to find ways to leverage the relationship.  Does the seller ask his contacts for referrals within their company?  Does the reactive guy understand the importance of knowing everyone within their account?

6.      Are negotiation tools part of the reactive seller’s skillset?  Long sales cycle… check.  High service… yep.  Products customized to the customer’s needs… inherently clear.  If the seller has not been trained on negotiation tactics, there is a very good chance you are missing out.  Research indicates negotiation training is not part of the distributor vocabulary.  I have seen SPASigma’s training and believe the reactive salesperson needs all of the advantages offered.

7.      Should a reactive seller be paid the same commission as a “rain making” sales guy?  This one is a lightning rod, but I am convinced there is a difference.  Plus, reactive sellers don’t bring the same level of value to the business. 

Finally….

I’ve made some pretty brash comments.  I am sure some will disagree.  If I’ve upset you, send me a note.  Heck, post it right hear for everyone to read.  I look forward to hearing back from you.  Who knows, you might receive the River Heights Consulting Grand Prize: a postcard from Iowa.

By the way… I made reference to SPASigma’s fabulous distributor-centric Negotiation Training.  Founded by Distributor Pricing Expert David Bauders of Strategic Pricing Associates.  David has helped 500 distributors grow their gross margin (typically around 2 points) through a scientific analysis of price sensitivity and customer type.  SPASigma moves the needle forward again.  There’s a five minute video at www.SPAsigma.com.  

Salespeople have feelings too…

A couple of weeks ago, we posted a blog called “We need more sales calls, but it’s not happening.”  The basic premise was this, sales people struggle to produce enough calls because they lack skills, have developed poor habits or just don’t think about how they schedule their time.  I went out of my way to say this…

"…before I rattle off the reasons, allow me to say I don’t believe sloth has anything to do with the situation.  Lack of skill, sometimes.  Bad habits, probably.  Deliberate laziness, no way."

I had hoped the article would spark controversy and conversation.  And it did. 

Since I value the opinion of others and would like the whole of the distributor landscape to give the issue some deeper thought, I am publishing a few of the better stated comments here.

First, I love the pithiness of this comment…

“Speaking on behalf of sales people everywhere. I want a supervisor’s advice on sales calls about as much as I want a tax audit.”

Here’s one that I hear often…

“I am always amazed how soon after someone moves up from a straight sales role to anything in management they forget what it is like out there on the streets.  All of a sudden they forget all of the totally unreasonable expectations and burdens that their managers put on them and start dumping them on their people.  The best managers I have worked for recognized this and worked hard to keep the level of BS to a minimum.”

One writer (name withheld to protect the innocent) went on to repudiate a number of my thoughts.  Here they are with very little editing.

Speaking on the topic of scheduling….

“Today for example, I had a full day planned 100 miles from my office. One of the counter people even took my premier parking spot. After an hour in a tire shop parking lot talking to my first sales call and fixing some structural issues with his service, my largest customer emails me on what he needs. This is business we have not previously had and will increase market share with him. Best laid plans down the tube.”

Counting calls to the guard shack as a sales call…

“I have done those guard shack sales calls. This is what I learned. Who has visited in my industry, the person’s name I need to see, the protocol to get into the gate, visiting hours. One of the most important allies a salesperson can have is the gatekeeper, be it a security guard or receptionist. You have to set up the knock out shot with a jab once in a while.”

The value of setting appointments…

“Technical Sales are the best kind of sales. They are asking your advice on what they need. This gives you the ability to customize the BOM to exactly what you have. Technical sales border on design/build and generally have higher margins than standard selling. Sometimes it's just better to freelance than having structured rigidity of scheduling all of your appointments. A little like "Ferris Bueller's Day Off" when you go impromptu you do not know where you will end up.”

A note from Frank:  Ferris Bueller’s Day Off was one of my

favorite movies.  For some sick reason I related more to Mr. Rooney, the Dean of Students, who spent his time trying to track down Ferris Bueller.  I hate salespeople who play hooky from work.  Someday ask me about the guy who lost his pager while making sales calls in a remote territory yet his pager turned up on the 11^th hole of a local golf course.  My suspicions on him were right.

Comments about lazy salespeople…

“I have seen even "Lazy" Salespeople succeed. Much of the time the last person you see is the next person you order from. Some "lazy" salespeople just show up, nothing in hand, no sales pitch, and no plan. They will still succeed at some level.”

I stand by my original statements.  I believe sellers need to put process into their game.  I totally buy into the sentiment, some sales managers try to micromanage.  However, I also believe some very good journeymen sellers (comment not intended to be sexist), struggle with bad habits, sales slumps and variations in sales activity. 

I don’t believe in micromanagement, yet many consider even the smallest addition of process to be “dictatorial”.  There are sloppy managers and managers who aren’t operating at the top of their game.  There are even a few sales managers who could serve as poster boys for Dr. Lawrence Peter’s famous principle.  That’s another topic.  However, my advice to distributor leadership has always been to expect heated pushback from your sales team on any change. 

I believe pushback and resistance from sales teams is a good thing.  Debate is a key ingredient to the development of long term strategy.  Expect it, encourage it.  But once the debate is done, the strategy must be played out with fierce resolve.

Finally, here is a very important point brought by one of the respondents… I could not agree more.

 “….little of what we do today as sales people affects tomorrow. If your sales are sliding or are flat, that started long before it showed up on any numbers sheet.”

#truth 

We need more sales calls, but it’s not happening!

Business levels are flat (at best) and sales managers are clamoring for more sales calls.  All across distributor-land, sales managers are pushing their teams for more productivity.  They reason more sales calls equates to more discovery, more opportunities to quote and greater visibility with customers who for some reason or another share their business with several suppliers.

The pressure is on.  Ranging from kind requests to outright threats, sales managers are pushing for more calls.  In cases where the distributor uses some form of call reporting (CRM or otherwise), the reports are getting greater scrutiny and results aren’t pretty. 

Under pressure to create a better looking report, salespeople are counting drop by visits with no actual customer contact as a “sales call.”  Under the heading of a good example of terrible selling behavior, one reported sales call consisted of driving up to the guard shack of the customer and asking for the head of maintenance.  Since the seller had no appointment and lacked the name of the individual, they were summarily turned away.  Another slightly more credible example of a sales call involved the sales person making a delivery to the customer’s facility where the only contact came with the receiving clerk.  Clearly, this type of behavior does little to impact the bottom line.

Why aren’t we seeing more people?

I believe there are a number of reasons that our salespeople are not seeing more people.  But before I rattle off the reasons, allow me to say I don’t believe sloth has anything to do with the situation.  Lack of skill, sometimes.  Bad habits, probably.  Deliberate laziness, no way. 

Finally, here is my list for why salespeople can’t improve their number of calls:

• They fail to plan their time.  As sad as it seems, on any given Friday afternoon many can’t tell you what they are doing next Wednesday afternoon, unless that day happens to be vacation or the next sales meeting.  Planning is both a skill and a habit, both of which can be improved.
  
• They fail to optimize travel times.  Only a few of the sellers we know have territories compact enough to ignore travel times.  The guys in secondary markets drive 50 miles to make a sales call without considering stops along the way.  Folks in big cities cover less distance, but the effect is the same.  Only a rare few plot their day in a way that offers maximum time with customers.
  
• They fail to make appointments.  Could be a habit, could be a skill or it could be their customers just plain don’t want to see them.  Getting appointments are hard (not impossible) to make these days.  A lot of folks have just plain given up on making them.
  
• They get sucked into mundane tasks.  Some return to the office to follow-up on trivial orders, others drop what they are doing to immediately respond to a quotation and others get hung up on “baby sitting” customer orders.  A few simply don’t trust their support team enough to carry out even small tasks.  A good many are control freaks who feel good about controlling more than they should.  While all of these might be important, they need to maximize team involvement.
  
• They spend too much time to responding to customer emergencies. 
  Technically oriented sellers often fall into a purely
  
  reactive mode of operation.  They get personal satisfaction from solving customer emergencies and customers love them for the work they do.  Sounds great, except that when times are slow, they spend more time instead of less time with each emergency.  Further, some salespeople don’t measure their value.  They spend inordinate amounts of time with low volume, small potential customers.
  
• The situation is complex and requires individual coaching…Reviewing the list, it’s pretty clear there is no one magic bullet fix.  Out of a half dozen sellers there may be four or five different situations.  This is where the sales manager earns their keep as a manager and coach.

Over the years we have devised a plan for assisting sales managers understand and respond to individual weaknesses effectively.   As with any type of long-term improvement, it takes time and a bit of effort.  

Here is the simplified version of the plan:

• For the next 6-8 weeks set aside a time on either Friday afternoon or Monday morning to review each seller’s activities planned for the next week.  Experience shows this takes about 20 minutes per salesperson.  Let them know this is not a permanent procedure but a 6-8 week coaching assignment for the manager.
• Specifically log the data as to where they plan to go, who they want to meet, what they plan to discuss, whether an appointment will be set and the proposed date of the call.
• During the same meeting, review the results/details of the last week of calls.  When possible match the planned week to the actual results (a week later).
• Look for the following:
• Issues with scheduling.  Are they really planning ahead?
• Issues with setting appointments.  Do they need some coaching here?
• Emergencies which took them out of the field.  Are they justified or just control issues?
• The products, services, issues discussed.  Customers don’t want their time wasted.  Are the products properly selected?  Are they bringing the right sales materials?
• Identify individual issues which need skills training, coaching or management.

Coaching works better when individualized…

They say it takes 30 days to break a habit and longer to develop a new skill.  Don’t expect instant perfection.  In fact, you should expect improvement sandwiched between in a bunch of returns to the old habit.  But, don’t let your team wear you down.  Improvement will come.  It takes a while but our work indicates a couple of months spent today can change things for a long time.

Finally, we would love to chat about your unique situation…

Drop us a line or give a call.  We would love to hear about your situation.  We have plenty of resources available and a good many of them are… free.

Believer, Skeptic or Psychoplanner, Part 3

Part III: Key Topics to get the Planning Juices Flowing

Joint Planning with Key Supply Partners
Not all vendors are created equally. Some have the power to cause our business to accelerate; others don’t. We have proof that companies who plan with their supply partners grow faster than their competition. Lots of companies go through the motions of planning with their partners. If you would like to hear of our proof, give me a call.

Major Marketing Activities
These can be marketing activities, plans for customer presentations, open houses, trade shows and other such events. Often we observe distributors rushing into events they have known about for a very long time – just because they lacked planning.


Major Technology Initiatives
What major initiatives can fundamentally change the way you do business? Here we are referring to things like CRM System implementation, implementing pricing tools, rolling out a new software system or warehouse bar-coding projects.






Product Launches
Far too many times, distributors in our industry launch new products and nothing happens. Based on observations and reports from the field, very little planning is applied to the process. Before you launch a new product ask yourself a few questions about the plan. Do we have the stock on hand to support the initiative? Is literature in place? How many times have you allowed a supply partner to do the training only to realize the support materials were lacking?


Targets – accounts, products and line expansions
Research indicates companies who establish formal targeting processes are 47% more effective in reaching their sales and financial goals than organizations who leave targeting to their sales team (without a process). Do your targets have timelines, individual responsibilities, opportunities for review and measures of success?


Inventory Management
Seasonal shifts in demand, changes in technologies and

obsolescence of existing products sometimes requires more than just a single person’s input. Without a plan in place, less than ideal consequences arise. A process for measuring and monitoring the ever changing conditions around the Industrial Distribution must be incorporated into the inventory management to achieve maximum results.

Now a final word for our psychoplanner friends
You have read through this article. Little voices are going off in the back of your mind. One voice says, “I’m a planner. This is a bunch of hot air. Plans don’t need all these things to work.” But you feel a little discomfort because you remember times things didn’t work out like you imagined they could. The other voice is saying, “If I would have had reviews, I could have avoided a costly mistake.” Or they're saying, “The inside sales group just didn’t execute on the plan. Maybe I should have assigned Deborah to make sure things got done.”

No plan is a perfect plan. 
Following the best practices of other Industrial Distributors tips the scale in favor of accomplishing top notch results. What would happen if you started looking back to the best practice list on a regular basis? My guess is you would soon find yourself enjoying at least one of my old distributor friend’s plans. And you too could plan for a nice summer vacation.

If you are planning to improve your own planning process, shoot me an email. I have a list of other areas where planning can impact your business.  

Of course, you're also still welcome to check out my planning book on Amazon.

Believer, Skeptic or Psychoplanner, Part 2

Part II – Planning Must-Haves


Every step of the plan has a due date - when we say we will get something done in the future, the future rarely happens in our lifetimes. However, when we say we will get it accomplished by 3rd quarter and set milestones for the January, March, May and August, results take place.

Every step of the plan has a single person responsible for its completion – committees rarely get anything done unless the chairperson takes on the responsibility. The same holds true with departments, groups and other work teams; somebody needs to be responsible for shepherding the results. This doesn’t mean they do all the work, but they must hold others to the course.

Plans must be documented and archived – when plans aren’t written and documented they get lost in the shuffle. Employees forget their responsibilities. Later on, disputes arise as to the actual results expected and commitments made.

Plans must be reviewed – any plan without periodic review is a waste of time. Review is easy when the plan is documented and individuals are held accountable for their implementation. Further, in companies ramping up their planning skills, it takes a couple of reviews before employees believe that planning is serious and real.

Not every plan works – some plans just plain doesn’t work. Good managers and their companies take the time to understand what changed, what mistakes were made, and which assumptions proved to be incorrect. This improves future planning.

Don’t confuse lack of execution with a poor plan – many times plans don’t work because somebody failed to follow through on their commitments, mishandled an important step or didn’t have the personal horsepower to drive things forward. Without execution, even the best plans fall short of the mark.

There must be consequences for lack of performance – some people respond to plans in a better way than others. In every company we have dealt with, we have discovered a few who did not take the planning process seriously. Sometimes these poor performers produce a respectable result. In their own mind, their results prove planning is a wasted effort. We believe differently. Periodic review and individual responsibility soon flushes out poor planners. Be prepared to deal with these individuals.

There is no generic best plan – beware of those who tell you their plan is the best. The right plan is based on your company, the skillsets of employees, long term culture and business climate. Your plan must be tailored to your situation. This doesn’t mean you can’t model your plan around a successful plan of another company. Instead, it means your plan must be tailored.

Expect (demand) planning improvement – one of the most rewarding experiences comes years after an active planning process has been put into place. As the team develops planning skills, activities that once took years can be accomplished in months. This accelerates the growth of your business.

Bring in outside help – this may sound just a wee bit self-serving but ask yourself these questions: Does any of this sound like rocket science? Why aren’t we better in our planning? An outside resource helps you anticipate the bumps bruise and roadblocks along the way.

Anticipate pushback - as you begin adding discipline to your planning process expect pushback. The most common phrases heard in the trenches of wholesale distribution sound remarkably close to these. “I’m too busy to plan right now.” “I already have a plan it’s just not designed in a formal way.” And the omnipresent favorite, “Listen, do you want me out selling or sitting in the office planning?”

This isn’t about strategic planning
Let’s not get this confused with some kind of elaborate strategic planning session. This type of activity could best be considered tactical planning. Applying planning to some of the critical aspects of our business to accelerate the flow of results is paramount to success in our world today. Planning helps prioritize important tasks in a world full of distractions.


Next week well get your creative juices flowing with some Planning Topics for Distributors.  Until then, check out our planning tools on Amazon.

Strategic Account Planning Part 8

Follow the Money

In an earlier edition, we talked about understanding the opportunity presented by an account. Let’s push this thought further. Way back in the late 70s, there was a movie called All the President’s Men that popularized the catch-phrase, “follow the money.” And while the movie put a negative stench on the phrase, for sales types, it comes with a great connotation; almost like a new car smell. So with this thought, hop in and join me as we… follow the money.

The truth is most sales people follow technology, applications, customer needs and pursue friendly contacts. Salespeople rarely follow the funds. I can’t help but wonder if a lot of guys actually feel like their work is cheapened by the exchanging of money. Just think back about how many times you have heard a salesperson lament:
“The proposal was perfect. The product was everything the customer wanted. We were the best supplier on the planet. But, the customer didn’t have any funding.”

Think about this for a moment. Selling time, pre-sale research, product specialists, engineering resources and a ton of money spins down the proverbial drain. And, it all could have been avoided by asking a couple of well selected questions/phrases.
Here are six easy examples:
1. How does your company justify projects like this one?
2. Does the whole thing go through a process or committee?
3. What kind of budget do you have for something like this? I want to make sure you get the best deal for your money and understanding the budget helps me focus our work.
4. What are the financial issue driving this decision? I want to better understand how the need for improvements are discovered.
5. What kind of payback are you looking for to make this project work?
6. Who holds the purse strings for a project like this in your company?

In an earlier article on the whole topic of Strategic Planning for Accounts, we spoke about the need to understand the value you provide to the customer. Following the money is partially a financial play. You focus your attention away from the “stuff” in your catalog and onto the workings of the customer.

An aside from Frank:
This is for those of you who were forced to study Shakespeare as a teenager. Ms. Miller, my 8th grade English teacher, called these a soliloquy. I don’t write many but here goes…
I know your products are spectacularly interesting; they probably have the latest “double-dip-thong” technical wizardry. My guess is your company has a really creative Vision Statement and a trip through your warehouse is like a visit to the top secret NASA Space Lab. But, all of this is only mildly amusing to your customer contact. If the contact happens to be a financial guy (Plant Manager, VP of Operations, Production Manager or somebody else), your product selling scoop bores them to tears. They only want to talk about their company and money. Period! Now back to the article already in progress….

Understanding where the money comes from is important to your credibility but it gives you some old fashion selling advantages as well.

Anticipating the money
We have discovered salespeople who know where the money comes from are able to anticipate its arrival. Knowing about a potential project early is a powerful advantage. The salesperson who knows about the coming “money” can build credibility with people they may have missed in normal calls to the customer. They can research new product advantages. Gain new insights to drive the proposal forward and jockey for better competitive position.

Distributors with non-exclusive supplier lists can use the extra time to lock in on special pricing agreements, strengthen relationships with the supplier and leverage the suppliers for competitive advantage.

Signing off for now…
There are a half dozen other advantages to following the money. Many of these involve nuances in managing your business; things like inventory and staffing. But from a purely selfish selling standpoint, imagine the time advantage of knowing the difference between funded spending and a pie in the sky chase down a rabbit hole. Time is the world’s first unrenewable commodity. There will be times when something has to be pushed aside. Why not put off the unfunded sale?

The New Salesman: Solution Seller vs. Problem Finder

Getting There First and Don’t Be a Problem Solver

Special Note:

While this method solves the problem,
it requires little skill or forward thinking.

This story takes 3 minutes to read. If you are in a time crunch, skip the story and jump to the moral of the story.

A few years ago we studied the Mechatronics Industry, which is the marriage of mechanical systems (gears, belts, electric motors and hydraulics) and electronic systems (computers,

PLC’s, sensors and digital screens). Along the way, our work discovered mechanical distributors were almost always the first to learn of customer projects. Why? Customers designed mechanical portions of their system ahead of the electronic portion.

In all but a few situations, the mechanics were engineered 60-90 days ahead of electronic controls.

We believed this gave the person selling both the mechanical components and electronic controls a competitive advantage over a “controls only” seller. Knowing about and working on solutions for the customer 90 days ahead of the competition should allow for better positioning (no pun intended) of products and unique solutions.

We were wrong. After discussions with dozens of sellers, we discovered only a few were able to capitalize on the time advantage.

The vast majority of the sellers were addressing customer problems as they surfaced. It was a serial sequence. Issues solved one at a time over a period of a few weeks. For instance, on day one the customer needed a couple of gears and the salesperson quickly identified the proper catalog number for the application. The next day, the customer needed a timing belt to connect to one of the gears. Again, the salesperson identified the proper belt.

It was as if each situation was a stand-alone event. The customer identified the problem and the salesperson found a solution to the problem. Many even referred to their practice as solution selling. And, in a purely linguistic way, they were correct. But, I think they were missing a point.

The best sellers (and small group were did use the competitive advantage) are more than problem solvers. They are problem finders and forecasters of future issues. Let’s take a look at how this same story works out for salespeople who work the “Problem Finder Beat.”

Want to pick Frank's brain over coffee?
 Invite RHC to your next trade show or
team building event!

Again, we dig into the same situation: Mechatronic applications. The salesperson talking about the mechanics realizes some aspects of the design need special consideration in the electronic controls. They temporarily stop forward momentum and present anticipated problems to the customer.

A conversation might go like this:
“Ms. Customer, if you go in this direction with your mechanical design, you will need to be prepared for an oversized control box. I can look into the deliveries now, because some of them require 12-week lead times.”


The salesperson anticipated a problem (before the customer recognized they had one) and set herself up for future success. The customer feels lucky that an unanticipated issue was avoided. A bullet was dodged. Future risk on this project was averted. And, most importantly, the customer views the seller as a valuable ally in future designs.

And Finally
A question from the author. Did you read the story or skip straight to the moral?

Frank has one of the most expensive USED books on Amazon.com.  Check out the NAW (National Association of Wholesaler Distributors) site and catch a deal!

Channel Killing Blunders: The E-Store

Distributor Policies – Worst Practice Mistakes Revisited

In the past couple of weeks I have been bombarded with horror stories of distributor policies gone wrong.  I have to wonder how and why so many manufacturers fall into the same traps.  Perhaps they don’t have a vehicle for benchmarking distributor practices. 

Manufacturers with strong distribution channels typically participate in Distributor Associations and one can surmise networking takes place to some extent or another.  If not directly with other manufacturers, then information may be exchanged by way of distributors sharing best practices.  The others, well some days it’s tough to imagine where they get their input. 

Management teams from Europe and Asia often don’t truly understand how the channel works in North America.  The whole concept of distribution sounds as goofy as buying hot dogs at a barber shop to their native sensibilities.  I mean, if you don’t really understand value proposition of a distribution channel, the set up really does seem like a massive margin giveaway.  This isn’t an excuse, but it is a definite possibility.  Wholesale distribution in North America is generally more professionally developed, provides greater value to their supply partners and customers than channels elsewhere who merely handle paperwork. 

Newly minted MBA’s often only understand wholesale distribution in an abstract way.  After reviewing some of the case studies developed around wholesale distribution for MBA programs, our kind of industrially focused and knowledge-based distribution lacks representation.  Instead, one is likely to see stories of food, beverage and pharmaceutical distributors.  In other words, unless they seek to understand what we do, they can only imagine our model looks just like the local Dr. Pepper Distributor.  

Regardless of the reason, their mistakes cost them plenty… money, marketshare, growth, brand recognition and the good will of the world’s largest industrial selling resource.

I plan to publish a series of channel killing blunders but to get you started here is a good example of a bad strategy:

Case 1: Poorly thought out E-Store Strategies

Everybody needs an e-Store

Manufacturers are playing with the concept of e-stores.  They get bombarded with articles and sales calls expounding the benefits of an e-store presence.  In theory, the ideas make sense.  Provide customers who lack a local distributor relationship an easy outlet for your products.  While in most cases, a list of distributors by zip code would work just as well at a fraction cost.  Based on the view of e-stores only serving customers without a distributor partner, the e-store concept still seems benign.

Issue arises.  Nobody actually uses the e-store.  Careers are on the line.  Somebody has to do something.  After all, the manufacturer laid out big bucks to have it programmed, produced and populated.  Why not call on marketing to attract business?

Distributors discouraged

Advertising your e-store irritates your channel.  Distributors hate direct business because it has a long checkered history of abuse.  Distributors value sales leads.  Most do a pretty good job of following up on the leads.  Progressive distributors see leads as door openers for not only one product but for their whole line card.  Some turn into immediate sales opportunities, others bloom over time (after weeks, months, and years of nurturing calls).  But when an e-store is in place, it becomes the recipient of any new leads.  If the advertising works, the e-store gets traffic.  But since most customers want someone to provide intelligent assistance along the way, e-store purchases don’t happen.

Still no customers down at the e-store
The e-store manager contemplates business levels (or lack thereof), they assume published list prices are the culprit.  Cutting prices on the e-store should attract customers who are “on the fence” or comparing brands.  Unfortunately, discounting published prices impacts distributor margins.  When the distributor’s customer says, “I can buy the product cheaper on the internet.”  The distributor salesperson usually gets the sale, but at a lower than normal margin.  If they hear the “cheaper on the internet” story more than a couple of times, most distributors will switch their strategy.  Distributors who once actively sold the manufacturers product by finding new applications and converting competitive business invest their time in more profitable products (in selling time is money).

If the online price gets low enough and the distributor feels they no longer make sufficient gross margin to turn a profit, the distributor will begin to actively target the e-store owners product for conversion to another line.

A word of warning to the guy with an e-store
If you are congratulating yourself on not yet seeing distributors switch your products at the customer, you’re not out of danger.  Product conversions take time.  By the time you notice the effort, it will be too late.

Shipping is part of the price

If the customer gets better shipping terms than the manufacturer’s authorized distributor, it will affect your distributor channel too.  Why provide free freight to online customers, but charge distributors a freight fee?  A combination of low prices and free freight will “whip up” your channel’s blood pressure just as quickly as dirty deeds done dirt cheap pricing.  

Sometimes, the e-store doesn’t even belong to you
Every manufacturer should have a published distributor policy for advertised prices.  Without even committing a single of the e-store sins described above, a handful of distributors adopted strategies for using the internet (and very low pricing) as a tool for expanding their business. 

These wholesalers have taken on a new business model for business.   They see themselves inserting technology in place of a sales force.  Working the internet model to expand their business to the world is their credo.  I appreciate their entrepreneurial bent.   However, I also see the poaching effect of their very low prices on the distributors who actively sell.  They provide deep discounts and do absolutely nothing to promote their manufacturers’ brand, discover new applications or grow the marketshare.

I am not an attorney

I’m not passing myself off as an attorney, but here is my understanding. 

It is illegal to dictate price levels.  If the on-line guy wants to give the product away, that’s their right.  However, you can dictate lowest advertised price.  The customer can still call and negotiate, but that’s another step and it’s the banner add with a super low price that hurts your distributor efforts.

Finally…

We’ve all benefited from best practices.  Perhaps some can benefit from a list of worst practices.  If you see a manufacturer who is going down this path, shoot them a link to this post. 

Better yet, if you have a favorite worst practice to share, send to me.  We’ll add it to our list (without naming names or companies).

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