Why Reps Vs Direct A Discussion

Why Reps. . . Vs Direct A Discussion of Sales Force Philosophies & Economics

What is a Manufacturers’ Representative ? ? ? ä ä ä ä A commissioned agent (in our case, sales engineers) Represent non-competing companies Assigned an exclusive territory … under contract Legally independent yet very “interdependent” Responsible for own expenses / personnel / actions Reps take no ownership of products / no credit risk 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 X 4 Manufacturers’ Representatives X X 4 Employees of company Total control by company An independent organization A technically competent sales organization Outsourcing the sales function Representing other non competing, synergistic products (companies) 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 ä ä Many sizes Differing capabilities With many different business philosophies With many different (company) personalities & styles It’s impossible to have 2 identical rep firms 1. Each has their own unique “DNA” 1. 2. 3. 4. 5. Personality and style of management / owners Different make up of principals Assortment of staff personalities Geographical differences Customer types, sizes, etc. . . As do manufacturers, distributors, lawyers, etc. . .

Two Kinds of Rep Firms ä Salesmen in Business ä Businessmen in Sales Ù Individualistic Ù Organized & managed Ù Conflicting goals Ù Promote team concepts Ù Not well organized Ù Company goal oriented Ù Inflexible Ù Financial stability Ù Short term oriented Ù Long term relationships A major differential !!!

Exploding Some Myths Myth # 1 Wrong !!! Reps are a “channel intermediary !” (adds cost) (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.

Exploding Some Myths Myth # 1 (cont’d) Wrong !!! Reps are a “channel intermediary !” (adds cost) ä ä Newer texts reflect this understanding. (Wharton School, Stanford U. , Indiana U. , ASU & others have revised their teaching A rep firm is a form of outsourcing the sales function Reps are not an additional channel … nor are they middle-men which implies added cost For example, distributors, contract manufacturers are channel intermediaries.

Exploding Some Myths Myth # 2 WRONG again…! “Reps can’t be controlled”! ä Control is a bad word … 1. 2. 3. ä ä Autocratic management is ancient & indicates poor abilities Sounds too much like bullying / manipulating In the 21 st Century, no one likes to be “controlled” … including direct sales people But, . . directed ? You betcha ! Led ? Absolutely ! Influenced ? Everyday ! Even smaller principals can become an emotional favorite and exert strong influence over any rep firm.

Exploding Some Myths Myth # 3 “Reps are (too) independent. . . businessmen !” ä A legal term only … for lawyers, IRS, etc. It eliminates mfr. 's liability 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 3 3 ä In reality, reps are totally interdependent with their principals

Exploding Some Myths Myth # 4 “Reps have a short term mentality”! ä ä ä This implies that reps look for quick financial return and will not invest in long term efforts. Most start up manufacturers utilize reps … hardly sounds like “short term”. 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

Everybody’s talking about “Adding Value”

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 Even if they don’t realize it ! 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 Or they won’t survive !

Do Reps need to “add value” ? A few questions from some reps pals… and my response 1. 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

Do Reps need to “add value” ? A few questions from some reps pals… and my response · 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

Do Reps need to “add value” ? A few questions from some reps … and my response ¸ What do reps do that can be considered “adding value” ? ä Lots ! That’s the next part of this presentation.

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 4 ä In a performance business !!! 4 4 ä we only get paid when we perform for both the principal and the customer. The principal’s sales force 4 4 ä service is the rent we pay for the space we occupy the customer expects us to offer solutions and not sell him anything we are his eyes and ears in the market place we are an extension of his image in the market place The customer’s resource 4 4 we must offer the customer an added value when he calls, he needs help and expects it

Reps are an Added Value to “The Customer” 1. Reps serve as their advocate 1. 2. 3. 4. 5. They know that the rep must work toward equitable solutions to their problems Reps are geographically permanent 1. Their success is tied to the local market 2. They will not be "promoted out of the territory" 3. Their entire reputation is locally based They must be ethical or they are doomed Offer more territorial knowledge & assistance Can be used a local resource

A Few Facts Some Dollars and Sense

Average Cost of an Outside Rep Salesperson. . . Looking at real numbers Expenses Shipments 1985 $127, 680 $2, 596, 000 1990 $170, 860 $3, 856, 500 1995 $220, 514 $5, 218, 030 No stocking No warehousing Pure Rep sales functions

Where the Commissions go. . . Of fic e Salaries Taxe s p ccu O T& E Au to m om C

The Economics of the Rep Function … None of which apply to direct sales ä ä ä Purest form of free enterprise Finance own growth Pay for own set backs / mistakes / experiments Paid only after they perform 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 Õincl. . computers, autos, cell phones, etc. . < Handle all personnel expenses & human resources responsibilities for staff Õincl. selection, training & replacement, legal issues, etc. < Train their own staff Õincl. computer software, selling skills < Reps are a form of "out sourcing"

The Economics of the Rep Function … None of which apply to direct sales 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 3 3 No age, sex or racial discrimination suits No sexual harassment suits No workman comp issues No benefit issues with which to contend No state or local laws with which to contend On a national basis, this can eliminate hundreds of risky & costly exposures for a manufacturer ! e ns e xp e al leg No

The Economics of the Rep Function … None of which apply to direct sales l Reps are a fixed percentage cost of sales Reps are paid on performance not efforts X Large customer comm. rates can be reduced to keep sales cost in line X Allows manufacturers to use capital in other areas for investment X Keeps costs in line with results X

Another added value. . . Geographic Competence ! ä ä Years of customer identification 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 More market data. . . where “stuff” is sold u Which markets are growing / shrinking u How people buy 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 An added resource and an Added Value ä ä Should be used as your district manager Tap the experiences of many other manufacturers Managing the programs, product offerings, policies and personalities of multiple manufacturers requires some skill. Why not utilize it ? Managing an organization whose only success depends exclusively on performance. That’s a Rep firm by definition !

Reps are Risk Takers … ! ä ä Look at the awful contracts that they sign ! They experiment with their own money. They live with 30 day contracts that are changed continuously. They must survive in a world of continuous change of sales / regional management … ; ; ä Reps are used to train many untrained bosses They adapt to different performance standards with each change of management Good Reps are survivors … they learn ways to survive despite all forms of turmoil.

Rep Councils A valuable resource ä Free, informed suggestions Minimal cost to manufacturers to receive valuable inputs u Can save lots of money from failed programs / policies u ä ä Can relate the successes or failures of other ventures / policies Can serve as your advocates to network with other reps … nationwide.

What Should a Manufacturer Expect From it's Rep Sales Force ? 1. 2. 3. 4. 5. 6. 7. 8. 9. A thoroughly professional, small business enterprise Entrepreneurial "spirit". . . committed to the long term Long term stability & relationships. . . A unique resource for marketplace "G-2" Loyalty, confidence, integrity and respect Proven ability to design & sell leading edge products Make the manufacturer's problems transparent to the customer Constant cultivation of new customers Quality performance in sales as well as the "day to day" representation of the manufacturer's total

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 That way This way For The Other way Survivors

Some Future Trends 3 3 3 Sophisticated “opportunity tracking” systems need to be developed and used Sophisticated electronic communications required Increased technical competence Improved internal training programs & methods Even more emphasis on distribution

Some Future Trends 3 3 Professionalism and relationships becoming more paramount with key customers / Disty Customer downsizing makes getting to see “key people” more difficult. Only those sales people who “add value” get past the lobby. More split commission issues & some will be settled by fee arrangements 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

Some “Points To Ponder” for Manufacturers ä 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! Train your people on how to handle the interview process. Most do a poor job & don’t know what to look for. Don’t make the selection process a popularity contest. 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 To Sum it Up. . . ä ä ä ä Economics … strongly favor the rep system Augments the manufacturers management pool without adding cost. Enhances the manufacturer’s geographic competence & exposes them to more customers & distributors Personnel permanence … married to the territory Stronger identification with local customers & Disty Leverage of the multiple line selling process Rep councils. . . serve as advocates & counselors

People

Salespeople are the spark that ignite the engines of industry !

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