Ewweb 3919 Davidgordonheadshot 0917 Crop
Ewweb 3919 Davidgordonheadshot 0917 Crop
Ewweb 3919 Davidgordonheadshot 0917 Crop
Ewweb 3919 Davidgordonheadshot 0917 Crop
Ewweb 3919 Davidgordonheadshot 0917 Crop

Speaking Out: Mega Agencies Vs. Smaller Reps

Sept. 28, 2017
While mega rep agencies are gaining strength in many markets, the author believes the future of small and mid-sized rep agencies is bright.

In an industry built on customer, influencer and channel relationships and where agility, local insights and stability are important, consolidation to gain an advantage remains an elusive goal for many. Ask yourself the following questions:

  • After years of distributor consolidation, why do the top five distributors only represent 33% of industry revenues?
  • Why is there not more manufacturer consolidation? And have those who grew through acquisition been actively supported by distribution? Many distributors talk about not wanting to be “leveraged.”
  • Talk of rep consolidation has led to some large agencies. However, they rarely represent the same lines across their entire footprint, and most manufacturers or distributors have not seen the benefit.

Size, in and of itself, is not a barometer of a “preferred” organization in the eyes of the customer. The business still needs to be earned. Scale may not be in the best interest of the customer. This is also the case in the world of manufacturers’ reps, where their customers are manufacturers and distributors.

In fact, many view the term “independent” as a culture that’s aggressive, committed locally and focused. Consolidation, for many, changes a culture and can lead to some passivity.

Mega agencies. Several “mega agencies” have emerged through consolidation. Some manufacturers and distributors say the incremental benefits have been questionable and perhaps only accrue to ownership.  While these mega agencies may put more salespeople on the street or hire more customer service personnel, line authorizations do not always transfer and incremental share and sales within the marketplace is not always realized. As a manufacturer, these are key metrics because the incidental benefits of interacting with one agency rather than two or more agencies are nominal.

While theoretically there should be more commission dollars generated and hence investable, neither distributors or manufacturers report significantly enhanced services from the rep. Most markets, however, are well served by the truly independent manufacturer rep — the small to mid-sized agency that focuses on a state or region.  These agencies know the players, and the key customers know the rep prinicipals. These independent reps  are committed to “their community” and, in many cases, are investing for tomorrow. For many of them, their vision isn’t to be the biggest but to be the best in helping generate sales for their distributors and manufacturers.

We have spoken with many small to mid-sized agencies on behalf of clients and get the sense from them that the future of small to mid-sized agencies is bright. Most agencies have less than 25 employees and we’ve seen a definite break in size between companies that have less than 10 employees and those with 11 to 25 employees.

Small agencies. Smaller agencies need to be careful about over-extending themselves. They can sometimes take on too many lines, attempt to serve disparate customer segments, try to reach customers beyond where physically feasible, or offer more services than they can be appropriately compensated for (with incremental dollars). Unfortunately, some of these agencies represent lines where they “accept orders” rather than add value for the end-user, distributor or manufacturer. Their value may only be knowledge of local distributor personnel.

Focus for small agencies is the key. A few key lines get them into the door to then share their other lines. The most effective small agencies also know where to “partner,” when to acquiesce and how to be guerilla sales and marketing personnel. Sometimes their biggest challenge is when salespeople (and principals) also have to play customer service and administrators.

Mid-sized agencies. Conversely, once an agency gets over 10 employees they often generate enough commission dollars to invest in their business and hence have a “benefit multiplier effect” that serves their three external constituencies. The slight increase in size helps take the business to the next level to allow incremental investments, especially in customer service, technology and end-user/influencer outreach.

These companies are creative, bring insights and value to their manufacturers, seek to serve their distributors with a high level of customer service while supporting them “in the field.” In fact, in talking with independent distributors, they prefer to work with mid-sized agencies as there is greater alignment of vision, business interests and local insights. We’ve seen progressive reps differentiate themselves in their market:

  • New agencies have been started by industry veterans and backed by strong manufacturers. These include individuals like Pete Kokuzian, formerly of Panduit, who started lighting agency Force Partners, and Paul Collins, formerly of Eaton Crouse-Hinds, who started Invictus Sales & Marketing.
  • Some agencies are passing the baton to younger generations and the younger generation is investing into the business and adding technology infrastructures.
  • Agencies hiring college interns to learn the business and create a sales personnel pipeline.
  • Reps investing in marketing
  • Interest in investing in technology tools to make doing business easier.
  • More of a focus on line evaluation and understanding their ROI on a line, and a consideration of taking on other lines to improve the profitability of their business.
  • A willingness to try new things.

Manufacturer view. In speaking with manufacturers, we’ve heard that many are finding that being a name brand on a line card with lots of name brands actually diminishes marketplace results. Rather than getting attention from the agency they become “just another line” and lose mindshare and market share within the agency.

This loss of visibility translates into lost share within the marketplace when planning, end-user sales calls, marketing and customer service are put on the back burner due to even larger lines or the rep salesperson having too many “top” lines.

A changing business. Progressive manufacturers know reps need to formally have stability in their relationship. Some manufacturers who want to grow and want their reps to invest in supporting their line are providing longer-term agreements. After all, how committed to a relationship can you be when contractually it’s for only 30 days? Would you hire a salesperson with an expectation of firing them in 30 days?

We have seen some manufacturers negotiate minimum guaranteed, activity-based and goal-oriented agreements; develop joint business plans based upon local business metrics and market share goals; jointly fund marketing initiatives; and provide increased training support. Other manufacturers are integrating technology initiatives; actively listening via advisory councils; and are seeking input to streamline business processes to jointly improve service for distributors

Agency change and growth. While the aging of rep principals means some agencies will be acquired, closed or have some type of internal succession plan, we’re seeing that mid-sized agencies are having these discussions, are recruiting new talent that can be part of their succession plan, and are identifying ways for ownership to monetize their business. Also, we have seen manufacturers’ sales turnover result in people joining agencies and increased interest in starting agencies. More manufacturers are entering the market and are looking for representation to support their distribution recruitment to build their sales.

As a manufacturer, it’s important to have representation options within a marketplace. If the market was to migrate to a few mega agencies, how would your line be represented? How would a distributor have access to “choice,” or is the manufacturer market destined to become pre-determined by a select group of agencies?

The future of small and mid-sized manufacturers sales agents is bright. The marketplace, defined as end-users, distributors and manufacturers, needs a choice in suppliers. This means there is either enough agencies to support manufacturers seeking agencies or these manufacturers decide for a direct model. Manufacturers that prefer the variable compensation sales model have learned that more feet on the street is better, and that local, committed and invested knowledge executes best. 

David Gordon is President of Channel Marketing Group, www.channelmkt.com, a strategic planning, marketing planning and market research firm focused on supporting manufacturers and distributors in the electrical industry.  He can be reached at [email protected] or 919-488-8635. Check out Channel Marketing Group’s electrical industry blog, ElectricalTrends —  www.electricaltrends.com.