Unlike Australia, the United States is the land of the ‘Manufacturer’s Representative’.
Most manufacturers rely on a network of independent representatives to provide distribution across this huge continent. (Australia is a huge continent too, but only small areas of it are populated.)
A typical manufacturer’s representative (Rep) is essentially a commissioned salesperson who promotes the offerings of a handful of (complementary but, hopefully, non-competitive) principals. Most Reps are small (often one-person) businesses, but some are larger enterprises.
Although Reps do provide a solution to this distribution problem, they also tend to present a few problems for the principal (manufacturer):
- They (for obvious reasons) like to monopolize the customer relationship
- Once they have a productive territory they tend to be reluctant to engage in further business-development activity
- They charge a significant commission — making it appealing for the principal to sell direct (resulting in channel conflict)
When we are helping our clients to structure sales environments that include Reps, we start by answering these two questions:
- Should you use manufacturer’s reps (or should you sell direct)?
- If it makes sense to use Reps, how should you engage with them to mitigate the problems above?
Should you use Reps?
Sales Process Engineering tends to weaken the argument for Reps, but not eliminate it.
Because we multiply the effective capacity of salespeople (we take them from two business-development meetings a week to 20), it becomes possible for salespeople to cover absolutely enormous territories. Now, it’s true that this additional activity will result in increased travel costs — but when you consider that most of our clients eliminate commissions and pay their salespeople salaries, direct sales can be a very attractive option!
However, there are two reasons why it may still make more sense to use Reps:
- Reps already possess relationships with potential customers which are costly to replicate via other means. The assumption here is that you are replacing an existing (competitive) principal.
- Because Reps carry multiple (complementary) lines, they can justify a field presence where such a presence may not be economic for you
How to engage productively with Reps
If it does make sense to use Reps, it’s important to consider the specific areas in which you expect them to add value. You can then try and structure your relationship with them so that they focus on these areas (almost) exclusively.
The obvious advantage that Reps bring to the table is their physical proximity to (existing and potential) customers. They can jump in their cars and visit customers’ sites at the drop of a hat. Reps do not have a structural advantage over you when it comes to other activities (e.g. telephone contact with customers, order processing, etc). (I’ll discuss the issue of the customer relationship shortly.)
Ideally, then you would structure your relationship with Reps so that they spend almost 100% of their time face-to-face with customers, engaged in either sales or operational activities — but only those that require face-to-face contact.
In practice, this would require that you assume the responsibility for a lot of activities that are traditionally performed by Reps, including:
- The receipt and processing of repeat orders
- Telephone-based support
- Promotion (the origination of sales opportunities)
Of course, you will only benefit from assuming responsibility for these activities if Reps use their additional time in the field representing your lines (as opposed to those of other principals)!
This is exactly why we need a channel-management function.
Channel management
The objective of channel management is to:
- Ensure that Reps dedicate a favorable percentage of their time to your lines (as opposed to those of other principals)
- Ensure that Reps engage in a sufficient volume of (field-based) business-development activity
- Maintain a positive working relationship between the Rep and your organization
In most cases, if our clients have direct salespeople (who are often competing with Reps for sales), we convert those salespeople into channel managers. We still provide these salespeople with coordinators (as per our standard method) — but in this case, we call the coordinators channel, as opposed to sales coordinators.
We then make two more critical changes:
- We ensure that our client’s inside-sales or customer-service team is equipped to process simple (including repeat) transactions
- We convince our client to promise Reps that:
- They will receive full commission on all transactions processed by the inside team
- All new-account enquiries will be routed to them
In other words, our position is that Reps are an all-or-nothing proposition. If it makes sense to use them (and in many cases it doesn’t), then they should receive credit for all transactions. If you lack representation in a particular region, then you should find representation, either by adding a new Rep or by convincing an existing one to expand their territory.
Let’s consider, now, how channel managers (and their coordinators) achieve the three objectives above.
The magic concept is field trips. In a field trip, a channel manager visits a Rep and spends a number of days (in the Rep’s car) visiting that rep’s existing and potential customers. Typically channel managers spend 100% of their time performing field trips (this means that it’s conceivable for two channel managers to service the entire North American continent).
It’s the channel coordinator’s job to organize these field trips (ensuring that each day is filled with at least 4 customer visits). It’s also the coordinator’s job to maintain an ongoing (telephone) conversation with the Rep, discussing the status of the sales opportunities that have been touched in previous trips (and updating the in-house CRM).
Priming the pump
So, here’s a critical question: how do we gain the leverage required to compel Reps to work closely with us like this?
In an ideal world, your product would be appealing (and differentiated) enough to provide this leverage. However, in practice, this may not be the case.
The solution is to give before you take. You can (and should) give in three areas:
- Provide Reps with sales opportunities (either by routing enquiries to them — rather than processing them internally — or by running the promotional campaigns required to originate opportunities)
- Provide Reps with more access to your channel managers — and a direct line to the channel coordinator
- Provide Reps with clerical support relating to order entry or any other operational issues
I should point out that transitioning existing Reps to this new working relationship is not easy. It’s part art and part science; and it will really test the sales skills of your channel managers (and your senior executives). That said, it’s generally a battle worth winning.
Where promotion (the origination of sales opportunities) is concerned, you may have spotted an apparent contradiction. I mentioned that it may make sense to use Reps when it is uneconomical to acquire customer relationships via other means. Then, above, I suggest that you should run promotional campaigns to originate opportunities for Reps!
This is not a contraction. In such a situation, you would expect Reps to be the primary source of accounts, however you can still justify promotional expenditure on the following grounds:
- It provides you with the leverage you require to plan field trips — and to gradually gain (friendly) access to Reps opportunities and customers
- These opportunities prime Reps’ business-development pumps. In other words, a handful of new sales opportunities can be used to get Reps out of their offices and into the field — where, of course, they are likely to uncover additional sales opportunities
- Similarly, a handful of opportunities will shift Reps’ focus to your product lines — causing your products to become (and hopefully remain) top-of-mind
What about relationships?
As is typically the case with direct salespeople, Reps will often be reluctant to delegate office-based tasks to your team because they fear that the integrity of processes will be compromised.
This is simply a recognition of the fact that formal workflows are required and that these workflows must be designed to eliminate the requirement for the transfer of anything other than simple information. The key to doing this effectively is to ensure that any complex workflows are managed by your customer-service or inside-sales team — not by Reps.
