Study the 100-year history of distribution and you will see areas of tremendous change and areas that have remained relatively the same.
Information technology (IT) systems and automated inventory control mechanisms have changed payables, receivables, and the asset side of inventory. Depending on the ability of management to mine the data, IT systems allow for better market knowledge on what to buy, who buys what and pricing.
More recently, logistics sciences have created scale opportunities. Warehouse automation, RF communication systems, and bar-coding mechanisms have left their mark on distributors attempting to do more with less and do it more accurately.
Huge capital sums go into IT systems, warehouse automation, and RF communication/location technology. Seminars on these subjects, vacant a few years ago, are filled with eager managers who are all-ears but eventually need to be all-wallet.
Virtually unchanged, however, is the use and structure of the sales force. Distributor selling has not changed much from three generations ago.
Sales managers may argue that today's salespeople have different skill sets and abilities. They quote maxims such as customer relationship management, consultative selling and power selling. Unfortunately, much of the literature and thinking on these disciplines goes back 30 years or more. These disciplines focus on the psychological side of selling, the types of buyers and matching the buyer to seller.
Beyond the aforementioned maxims, distributor salespeople have always been conveyors of product knowledge, relaying information to both buyers and service snafus back to operations management. In the earliest years of any industry, salespeople are essential. It takes trained, objective salespeople to communicate the new product technology and benefits of different brands. In the product life cycle, salespeople are at their most useful in the inception and growth stages of a product's life.
Consider that the product life for most wholesaling products is 50 years or more. Granted, products change some, but in general the original platforms began long ago. If the products are incremental changes of old platforms, why are distributors left with the same sales methods of decades ago? Could it be that distributors have largely left the sales disciplines unchanged? Or, have they recycled disciplines that aren't in tune with customer needs?
This first installment examines the sales cultures of the majority of today's distributors. Upcoming installments will review an underlying fundamental change in the role of selling. I believe it will be not only what a customer buys but how they buy that will determine much of the future direction of the sales effort.
|Sales Type||Compensation||Customer Need||Comfort Zone|
|Geographic||Gross Sales or Gross Margin Dollars||Nonspecific||Nonspecific|
|Techincal Product/Process||Gross Sales or Gross Margin Dollars||Product Technical Support||Consultative Engineering|
|New Account||High Base/Low Commission||Nonspecific||“Hunter”|
|Missionary New Product||High Base/Low Commission||Information Why Switch?||Influencer|
|Key Account||Gross Margin Dollar||Relationship Manager||“Farmer”|
The Sales Culture, Inefficiencies and Ineffectiveness
Trying to describe a culture, even for a business, is ambitious. The generalities are more or less accurate, but the specifics can tell another story. Nonetheless, it's important to understand the current sales structure of the typical distributor and how the dominant model is out of tune with the times.
The matrix in Figure 1 identifies industrial sales force types. On the horizontal axis are the column headings of Sales Type, Compensation, Customer Need and Comfort Zone. On the vertical axis are the types of sellers: Geographic, Technical or Product, New Account, Missionary or New Product, and Key Account. The main components, advantages and disadvantages of these traditional sales types are explained below.
Geographic sellers are allocated territories by land mass or by number of accounts. This sales type is dominant in wholesaling and is convenient for several reasons. First, territorial allocation on generated margin dollars or potential margin dollars is arithmetically easy. Second, the method limits “windshield” time so salespeople can maximize time in front of the customer or prospect.
The problem with geographic salespeople is that there is no specific customer need answered. Unless the customers are widely dispersed, geography describes little about a customer's needs. Commensurate with geographic sales modeling, the unique attributes (comfort zones) of the salespeople are nonspecific. In essence, you can have all types of sellers covering geographic designations.
Geographic territories are more efficient than effective. Translated, this means that geographic salespeople have low costs to sales but aren't terribly good at penetrating accounts. Why? Again, the answer is that geography is a poor way to segment customer needs. If you cannot break down needs into more specific services and products, account penetration remains a mystery.
Another hidden problem of geographic salespeople is the “annuity sales” syndrome. Once the salesperson builds the territory to a sated level of compensation, the proverbial milk run ensues. In other words, the salesperson loses the financial desire to sell more and begins to think of the territory generations as an annuity.
Figure 2 gives a reasonably accurate description of the “milk run” problem. In the graph, customer A starts from zero in sales (vertical axis) to $250,000 in revenues by year-three (horizontal axis). The revenue line (A) also shows that the account volume dips slightly after the peak of three years and remains steady for some time. To maximize sales productivity, the salesperson should trim his/her time back to reflect the seller time line labeled B. In essence, the line is the mirror image of the revenue line A. As sales rise, the salesperson should optimize productivity by decreasing time at the account and seeking another prospect.
In reality, sales time spent at the account resembles the Actual Sales Time (C). As the account's revenues grow, the salesperson spends an increasing amount of time at the account and time levels off at C. The wasted cost of selling, of course, is the shaded area between C and B; it can be substantial.
Consider that for most distributors the cost of an outside sales force is 3 to 5 percent of sales and an inside sales force is 5 to 8 percent of sales. Adding the cost of an inside and outside sales force can easily reach 10 percent of sales or 40 to 50 percent of all operating expenses. The problem is that distributor channels will no longer afford this type of cost inefficiency. The problem exists because of the poor training, or third-generation dogma that surrounds distributor sales managers who stick to geographic territory designations. Ostensibly, a growing number of sales managers realize the problem and have redefined sales types.
Technical product or process salespeople. Beyond geographic salespeople, technical product or process salespeople are beginning to emerge. In general, technical salespeople are adept at a complex body of knowledge. They understand complex interactions of products/processes to provide a working system. Often they are engineers or salespeople with loads of product training and practical expertise in their chosen field.
The problem with technical selling is that it's consultative. I often find consultative salespeople who consult to a plant engineer or technical influencer who passes the information on to their local purchasing agent to be shopped to every distributor in town. In essence, consultative salespeople give away their expertise for the probability of the sale. When I suggest charging for a consultative sales call, sales managers usually say that the customer wouldn't pay them. Of course, if they don't get the sale, they aren't getting paid regardless.
Plus, warranty risk is assumed for technical advice without the benefit of the sale. Let's say the close rate of a consultative salesperson is 30 percent; however, there is a 70 percent chance that you are donating your salesperson's time to frame a complex problem for a bottom-line-driven purchasing agent.
Looking at the problem economically, if your cost per consultative sales hour is $75 and each call takes three hours, then the cost is $225. If you have the best salespeople and run a 30 percent close rate, then you have probably donated $157.50 to your competition. Why? Seventy percent (orders you don't get) of $225 is $157.50. It's the cost you have to cover in your operating expenses and translate in your price for subsidizing the purchasing agent. It's also the price advantage a competitor has if they don't field technical salespeople. The bottom line on consultative selling is that it's a competitive disadvantage if you don't get the sale.
New Account Selling — The Hunter. As the name implies, new account selling puts salespeople in roles to open new accounts. This form of selling has been tried by many sales managers. The idea is that like hunters, some salespeople possess the primal instinct of stalking, shooting, and bagging the customer quarry. Although the designation makes for good story telling, there is not enough evidence to positively recommend this type of selling in the mature markets of distribution. Too often hunters think they have bagged the customer only to leave them prematurely for another distributor game stalker.
Missionary or new product selling. New processes or technologies need considerable training at the customer level. This training or influencing is best done by a face-to-face sales call that carefully explains the new process or product. This kind of selling is often found in manufacturers where a new technology is in the inception stage of its life cycle. For distribution, it is hard to find or recommend this type of selling unless there is a product exclusive or the process/product is proprietary to the distributor. Nonetheless, it is a valid method of designating sales effort that deserves consideration if the product/process dynamics are right.
Key account sellers. Often called “farmers,” key account salespeople manage the complex relationships of large accounts. Sales personnel in this role coordinate the teams of individuals back at the home office to work toward individual solution sets for key customers. The common jargon refers to these salespeople as customer relationship managers.
But, relationships are important only if the account values them. If the account is an economic buyer, a relationship salesperson is unwanted. Too often this type of sales role is justified by sales managers who trumpet their role as a warning to other parts of the organization.
In short, they appear to say, “Leave us alone and let us do what we need to do because we have the relationship with the customer. If you don't have us, you won't have the customer because we will take the relationship somewhere else.” The only way for management to understand the value of the relationship is to put an economic value to it and offer the customer pricing reflective with or without its cost. This type of value pricing is the subject of future installments. In summation, relationship selling can be a powerful tool, but only if the customer values it. And, relationship valuation must be grounded in economic choices of the customer.
I am often asked, “If selling methods are so archaic, why don't distributors change them?” My answer is that selling is a strong culture in most distributors. Salespeople dominate the front door of the organization and most sales personnel are so ingrained into the sales dogma that they have difficulty viewing their value and function from the customer's viewpoint. Salespeople become enculturated to the sales philosophy of SLH (sell like hell) and let the other parts of the organization take care of themselves. Although this makes for good story telling and camaraderie amongst salespeople, it is a myopic view of the firm and ignores the complexity needed to bring lasting value to fruition. A new model of selling is needed.
The next installment will look at the concept of value-based selling. The idea attempts to give the customer a choice on having the salesperson or not as part of the product sale. Technology and pricing strategy will pave the way for value selling. It is the sales manager's responsibility to read up and experiment with the new knowledge.
Scott Benfield is a consultant on marketing and sales strategy for distribution. He can be reached via phone at (630) 428-9311 or via e-mail at [email protected]m.
Key Points to Remember
- Distributor sales designations have changed little in the history of distribution while other disciplines have struggled to get the cost out and quality increased.
- Selling is the most expensive part of the distributor's cost structure. Geographic designations dominate most distributor salespeople. It is the weakest designation because it does not identify or address customer needs.
- Other sales types may or may not be appropriate. Much depends on the life-cycle stage of the product or process or the complexity of the customer needs.
- The future of sales will focus less on past designations and offer the customer an economic choice of whether they want the salesperson or not.