Tailoring Today’s (and Tomorrow’s) Sales Channels

Let’s begin with an unwelcome yet unquestionable fact: Sales channels and strategies that worked in the past probably won’t work in the future. In fact, the sales processes that worked for distributors, manufacturing reps, and integrators only 10 to 15 years ago already don’t work as well today.

Customers have largely driven these changes, and sales requirements continue to evolve and change with globalization. Technology is also driving change in distribution channels as products and services become more complex and more customized.

One of the most obvious indications of the changes caused by globalization is that customers are driving cost reduction—demanding it from their vendors any way they can. Customers want more products and services at lower prices. And “any way they can” means exactly that: If customers think they can eliminate middlemen commissions from the price, they will.

Many progressive manufacturers are in the process of changing their sales and distribution channels to fit the new mix of customers and their new needs. This requires a bit of experimentation. Not surprisingly, this is driving many independent reps and distributors crazy.

The latter two complain about how their worlds have changed. They say commissions have gone down, there are fewer exclusive contracts, manufacturers send out fewer leads, and they want more tasks completed in the selling process for less commission. In short, they say it’s harder to make it as an independent rep or distributor.

Manufacturers, in turn, complain about eroding margins, as well as how their customers issue more specifications and want more customization at lower prices. They also complain that customers expect more tasks and services done by the manufacturer as part of the selling process.

There’s at least some truth in all of these claims. Bottom line: The tasks required to get the sale have changed dramatically, and manufacturers are trying to find the right combination of sales channels which can balance selling costs, selling tasks, and customer demands for more specialized products and services at lower costs.

What sales tasks are needed? One of the best places to begin when determining the type of sales channel you need is to define the sales tasks that need to be completed for the commission paid. It’s a fact most customers now have leaner staffs and have transferred many in-house tasks to outside vendors and their sales channels.

Thus, it’s really worth the time to sit down and review all of the tasks that need to be accomplished to get a sale. Use a recent complex sale you received, breaking the whole process down into the tasks and who did them.

What follows is a typical list of sales tasks for specialist reps selling capital equipment. These tasks aren’t particularly difficult if the sales reps are selling a standard product. But if the product is custom or highly engineered, the tasks become complicated and time-consuming.

The second most important factor is the size and requirements of the customer. All 10 of these tasks become more difficult to accomplish when the customers are larger and there are specifications and very complex quotes. In some cases the tasks are so complicated that only the factory can satisfy the needs of the customer.

So without further adieu, the tasks:

1. Pre-sale information gathering.

2. The ability to do proposals/quotations.

3. Providing customer CAD drawings.

4. The ability to sell engineered products.

5. The ability to sell a wide range of customers.

6. The ability to sell systems.

7. The ability to do complex presentations.

8. The ability to train customers.

9. The ability to do sales prospecting.

10. The ability to communicate with the customer.

The changes in products, pricing, commissions, discounts, technology, customers, sales costs, and sales tasks are driving the revolution in sales channels. Manufacturers must now re-evaluate whether the sales channel can handle these new tasks or whether they must find a new or different combination of sales channels.

The key point is that each task costs money. If the sales channel cannot do the task, it will automatically be transferred to the factory or you will lose the order. If the sales channels cannot do some of the tasks (even with good training), then the manufacturer must look for a new sales channel—or modify the amount of commission paid to the channel—for the tasks that are completed.

Manufacturers are trying to find the right sales channel or channels that can handle their differing customers. Here are some examples of today’s sales channels:

Manufacturers’ reps. These are found in almost every industry and often substitute for direct salespeople. Reps generally sell a narrow line of non-competing products, do not take title to the goods, get paid on commission, and seldom stock inventory.

Specialized manufacturing rep.Specialized reps are usually found selling very technical or complex capital products. They usually focus on selling three or four primary lines that complement each other. They are technically trained to do the same job as a factory sales person.

Factory salespeople.As the name implies, these are full-time employees of the manufacturer. They are also known as direct salespeople. Factory salespeople sell their company’s products (and only those products) directly to end-users, and sometimes to middlemen.

Integrators.These differ from industry to industry. Generally, however, they are design engineering firms capable of designing, purchasing, installing, and servicing an entire system.

Major accounts. A major account person is a highly trained factory sales manager who has the experience and a wide variety of technical abilities to handle the needs of very large companies with corporate engineering staffs and procurement teams.

The defining factors for using a major accounts manager or department is that the customers force dealing direct with the manufacturer because they are so demanding in terms of technical information, communication, pricing, and discounts.

Multiple channels. This term refers to adopting combinations of sales channels to support a variety of different types of customers with different needs. This approach will be described more in the following example.

Hybrids. This is another emerging channel that is designed as a creative way to cover the needs of customers and tasks at the lowest cost. Hybrids are creative combinations of factory sales, manufacturing reps, and distributors.

Examples are factory salespeople who are paid 100 percent commission like independent reps, stocking distributors who also function as reps, manufacturing reps that are paid by the factory to only represent the factory product lines, and so on.

Catalog and telesales. This is another direct marketing technique that has really come into its own in industrial markets. Although it is primarily used for sales prospecting, telemarketing or telesales can also be used as a supplementary sales channel for small accounts, remote customers, and low price products that don’t justify sales costs.

Sales channels may be an oft-overlooked part of the sales program, but as should now be apparent, it’s a very important part. Indeed, selecting the right channels is key to staying in the game.

Mike Collins is the author of “Saving American Manufacturing” and its companion book, the “Growth Planning Handbook for Manufacturers.” To learn more about the author or these titles, visit www.mpcmgt.com.