Presentation on theme: "Why Reps... Vs Direct A Discussion of Sales Force Philosophies & Economics."— Presentation transcript:
Why Reps... Vs Direct A Discussion of Sales Force Philosophies & Economics
What is a Manufacturers’ Representative ??? ä A commissioned agent (in our case, sales engineers) ä Represent non-competing companies ä Assigned an exclusive territory … under contract ä Legally independent yet very “interdependent” ä Responsible for own expenses / personnel / actions ä Reps take no ownership of products / no credit risk ä Paid directly proportionate to performance “A perfect example of entrepeneurship ” “I’ve never heard of one !” “What do they eat ?”
Customary methods of selling in the electronic component industry 4 Direct Sales organization X Employees of company X Total control by company 4 Manufacturers’ Representatives X An independent organization X A technically competent sales organization X Outsourcing the sales function X Representing other non competing, synergistic products (companies) 4 A “hybrid” sales organization X A combination of both
Discussion Points... 4 Exploding some myths … about manufacturers’ representatives 4 Adding value 4 Economics of the rep function 4 Advantages of a manufacturers’ representative firm Vs a direct selling organization 4 My crystal ball … some future trends
Good Reps come in... ä Many sizes ä Differing capabilities ä With many different business philosophies ä With many different (company) personalities & styles ä It’s impossible to have 2 identical rep firms 3 Each has their own unique “DNA” l Personality and style of management / owners l Different make up of principals l Assortment of staff personalities l Geographical differences l Customer types, sizes, etc... As do manufacturers, distributors, lawyers, etc...
Two Kinds of Rep Firms ä Salesmen in Business Ù Individualistic Ù Conflicting goals Ù Not well organized Ù Inflexible Ù Short term oriented ä Businessmen in Sales Ù Organized & managed Ù Promote team concepts Ù Company goal oriented Ù Financial stability Ù Long term relationships A major differential !!!
Exploding Some Myths Myth # 1 (This reference to channel intermediary was a term used in older texts, yet still taught by some educators. Regrettably, some are still teaching this out-dated thinking to our future managers ) (This reference to channel intermediary was a term used in older texts, yet still taught by some educators. Regrettably, some are still teaching this out-dated thinking to our future managers ) è Reps are an alternative (or substitute) to direct sales and not an intermediary. Reps are a “channel intermediary !” (adds cost) Wrong !!!
Exploding Some Myths ä Newer texts reflect this understanding. (Wharton School, Stanford U., Indiana U., ASU & others have revised their teaching ä A rep firm is a form of outsourcing the sales function ä Reps are not an additional channel … nor are they middle-men which implies added cost ä For example, distributors, contract manufacturers are channel intermediaries. Myth # 1 (cont’d) Reps are a “channel intermediary !” (adds cost) Wrong !!!
Exploding Some Myths ä Control is a bad word … 3 Autocratic management is ancient & indicates poor abilities 3 Sounds too much like bullying / manipulating 3 In the 21 st Century, no one likes to be “controlled” … including direct sales people ä But,.. directed ? You betcha ! Led ? Absolutely ! Influenced ? Everyday ! ä Even smaller principals can become an emotional favorite and exert strong influence over any rep firm. Myth # 2 WRONG again…! “Reps can’t be controlled”!
Exploding Some Myths “ Reps are (too) independent... businessmen !” “ Reps are (too) independent... businessmen !” ä A legal term only … for lawyers, IRS, etc. 3 It eliminates mfr.'s liability 3 It makes Corp. attorneys feel good about protecting the company … contract talk only 3 Reps who use this terminology should think twice about what they’re saying and then clean up their vocabulary ä In reality, reps are totally interdependent with their principals Myth # 3
Exploding Some Myths “Reps have a short term mentality”! “Reps have a short term mentality”! ä This implies that reps look for quick financial return and will not invest in long term efforts. ä Most start up manufacturers utilize reps … hardly sounds like “short term”. ä Reps actually finance the long term sale for others l Many sales programs take months or years to develop l Reps hang in there despite 30 day contracts l No guarantee of future income Myth # 4
Adding Value … ? A serious thought “ Everything a company does should start with the idea of adding value to the customer, through better products, lower costs, greater speed, and superior service.” Michael Hammer, Author, “Reengineering the Corporation”
Everyone is Re-engineering ä Need to add value ä Need to reduce costs and / or add value ä Become more effective / efficient ä Get closer to the customer ä Offer more services at less cost ä More R&D ä Increase profits / earnings ä Competitive pressures ä Stockholder demands Even if they don’t realize it ! Or they won’t survive !
Do Reps need to “add value” ? ¶ Are these just spiffy new “buzz words” that have little meaning for reps? ä Absolutely not ! Any company or any of it’s employees who do not add value to their function will be replaced and their successors will add value or they will be replaced. And if the function they serve offers no added value, it will be eliminated A few questions from some reps pals… and my response
Do Reps need to “add value” ? · We’re in the selling business; it’s up to our principals to add the value … we just sell it ! ä Wrong ! We are doing more than selling products, or at least we should be. Our function should add to the value of our principal’s product and enhance our customer’s relationship with both our principal and our firm A few questions from some reps pals… and my response
Do Reps need to “add value” ? ¸ What do reps do that can be considered “adding value” ? ä Lots ! That’s the next part of this presentation. A few questions from some reps … and my response
How can Reps add value …? To Principals and Customers
Adding Value … ? A serious thought “ Everything a (Rep) company does should start with the idea of adding value to the customer (& principal), through better products, lower costs, greater speed, and superior service.” Michael Hammer, Author, “Reengineering the Corporation”
Adding Value … ? A representative’s only reason for existence is to contribute to the success of its principals and its customers.
A Rep firm is... ä A service business 4 service is the rent we pay for the space we occupy 4 the customer expects us to offer solutions and not sell him anything ä In a performance business !!! 4 we only get paid when we perform 4 we perform for both the principal and the customer. ä The principal’s sales force 4 we are his eyes and ears in the market place 4 we are an extension of his image in the market place ä The customer’s resource 4 we must offer the customer an added value 4 when he calls, he needs help and expects it
Reps are an Added Value to “The Customer” l Reps serve as their advocate Ù They know that the rep must work toward equitable solutions to their problems Ù Reps are geographically permanent ä Their success is tied to the local market ä They will not be "promoted out of the territory" ä Their entire reputation is locally based Ù They must be ethical or they are doomed Ù Offer more territorial knowledge & assistance Ù Can be used a local resource
Average Cost of an Outside Rep Salesperson... Looking at real numbers ExpensesShipments 1985 $127,680$2,596,000 1985 $127,680$2,596,000 1990 $170,860$3,856,500 1990 $170,860$3,856,500 1995 $220,514$5,218,030 1995 $220,514$5,218,030 No stocking No warehousing Pure Rep sales functions
Where the Commissions go... Salaries T&E Auto Comm Occup Office Taxes
The Economics of the Rep Function … None of which apply to direct sales ä Purest form of free enterprise ä Finance own growth ä Pay for own set backs / mistakes / experiments ä Paid only after they perform ä Reps finance the sale for others 3 Design-in may take months or years 3 Purchases will probably take several months 3 Payment … add min. of 30 day after shipment 3 Returns, reworks, rejects are deducted 3 Non-payment by customer or Disty is deducted
The Economics of the Rep Function … None of which apply to direct sales ä Reps reduce the mfrs. admin. cost < Manage their own staff < Buy their own equipment Õ incl.. computers, autos, cell phones, etc.. < Handle all personnel expenses & human resources responsibilities for staff Õ incl. selection, training & replacement, legal issues, etc. < Train their own staff Õ incl. computer software, selling skills < Reps are a form of "out sourcing"
The Economics of the Rep Function … None of which apply to direct sales No legal expense l Reps eliminate the “soft costs” of people and wipe out a manufacturer’s legal exposures ä Reps pay the costs to select, train, compensate, discipline and terminate their own employees 3 No age, sex or racial discrimination suits 3 No sexual harassment suits 3 No workman comp issues 3 No benefit issues with which to contend 3 No state or local laws with which to contend On a national basis, this can eliminate hundreds of risky & costly exposures for a manufacturer !
The Economics of the Rep Function … None of which apply to direct sales l Reps are a fixed percentage cost of sales X X Reps are paid on performance not efforts X X Large customer comm. rates can be reduced to keep sales cost in line X X Allows manufacturers to use capital in other areas for investment X X Keeps costs in line with results
Another added value... Geographic Competence ! ä Years of customer identification ä Other lines take you to more places u New customers & more opportunities u Customer status...who's winning / who's losing u In-depth relationships ä More market data...where “stuff” is sold u Which markets are growing / shrinking u How people buy ä More awareness of all distribution in territory u Know strengths and weakness u Know more personnel
Synergy & Leverage Synergy makes the "fit" Leverage "makes it happen" Good Reps know how to use both synergy and leverage. It separates the pro’s from the amateurs!
Management Skills of a Rep Firm ä Should be used as your district manager ä Tap the experiences of many other manufacturers ä Managing the programs, product offerings, policies and personalities of multiple manufacturers requires some skill. Why not utilize it ? ä Managing an organization whose only success depends exclusively on performance. That’s a Rep firm by definition ! An added resource and an Added Value
Reps are Risk Takers … ! ä Look at the awful contracts that they sign ! ä They experiment with their own money. ä They live with 30 day contracts that are changed continuously. ä They must survive in a world of continuous change of sales / regional management … ; Reps are used to train many untrained bosses ; They adapt to different performance standards with each change of management ä Good Reps are survivors … they learn ways to survive despite all forms of turmoil.
Rep Councils ä Free, informed suggestions u Minimal cost to manufacturers to receive valuable inputs u Can save lots of money from failed programs / policies ä Can relate the successes or failures of other ventures / policies ä Can serve as your advocates to network with other reps … nationwide. A valuable resource
What Should a Manufacturer Expect From it's Rep Sales Force ? 3 A thoroughly professional, small business enterprise 3 Entrepreneurial "spirit"... committed to the long term 3 Long term stability & relationships... 3 A unique resource for marketplace "G-2" 3 Loyalty, confidence, integrity and respect 3 Proven ability to design & sell leading edge products 3 Make the manufacturer's problems transparent to the customer 3 Constant cultivation of new customers 3 Quality performance in sales as well as the "day to day" representation of the manufacturer's total interests
Good Reps are... < Good communicators < Good team players < Ethical & honest in their dealings with everyone < Committed to excellence < Able to accept change and new challenges < Their own toughest critic < Students & teachers of their craft
Some Future Trends For The Survivors This way That way Other way
Some Future Trends 3 Sophisticated “opportunity tracking” systems need to be developed and used 3 Sophisticated electronic communications required 3 Increased technical competence 3 Improved internal training programs & methods 3 Even more emphasis on distribution
Some Future Trends 3 Professionalism and relationships becoming more paramount with key customers / Disty 3 Customer downsizing makes getting to see “key people” more difficult. Only those sales people who “add value” get past the lobby. 3 More split commission issues & some will be settled by fee arrangements 3 Reps will have to develop and reveal succession plans in advance of actual need
Some Future Trends [ Selling & presenting to groups at customer location [ More & more customer service functions being moved to rep’s offices [ Performance evaluation (benchmarking) methods will be changed … not just sales $$$ [ More territories will become design centers more so than sales centers [ Manufacturers becoming more tolerant of sharing the shelf in distribution
Some Future Trends [ Fewer company presidents are sales oriented. [ Distributor mergers & acquisitions have created chaos for small to mid sized manufacturers... reducing the manufacturer’s identification & influence with the end customer. [ Fewer manufacturers are of real importance to distributors [ I/S to O/S ratio is closing fast [ Reps need more advanced skills in management, finance, communications, info retrieval, etc..
Some “Points To Ponder” for Manufacturers ä Don’t let thy ego rise up and smite thee … when it comes to selecting reps. Being #1 on the line card isn’t what’s important. Making it happen is what’s important. “Mind share” means little … “market share” means everything. Zero in on performance … not buzz words! ä Train your people on how to handle the interview process. Most do a poor job & don’t know what to look for. ä Don’t make the selection process a popularity contest. ä Check other principals … that’s where the track record lies.
Some “Points To Ponder” for Manufacturers ä Ask other reps (whose opinions you respect) for inputs & recommendations. ä Check out your own regional & district managers … as you do your reps & distributors. ä For high level managers … please stay involved in the sales department. Keep a passion for the business & let it show!
The Advantage of Reps Vs Direct ä Economics … strongly favor the rep system ä Augments the manufacturers management pool without adding cost. ä Enhances the manufacturer’s geographic competence & exposes them to more customers & distributors ä Personnel permanence … married to the territory ä Stronger identification with local customers & Disty ä Leverage of the multiple line selling process ä Rep councils... serve as advocates & counselors To Sum it Up...