Reps and Distributors — the Basics, Part 2

How do you successfully work with reps and distributors?

The success formula has several elements, five of which are outlined here. They are positive incentives, communications, commitment, trust, and professionalism.

Incentives

Money is an incentive. The knowledgeable principal recognizes that the rep only makes money when he sells something. He also recognizes that larger commissioned products will get more attention than smaller ones. Therefore, the most effective way to gain this advantage is to positively "incentivize" the rep or distributor. Price and incentivize your product so that it is worth the reps' and distributors' time to sell it. Consider offering a bonus on initial sales to new accounts. If possible, give the reps and distributors an opportunity to invest in the stock of your company. This brings them closer to the source and makes them a stronger cog in the wheel. Other forms of incentive include public recognition of a job well done and the general success of being on a winning team.

Communications

Another important element of working with third party sales channels is effective communications. This means true, bi-directional communications, not just talking. Ask the reps and distributors to feed back customer objections, both real and imaginary then address the objections to enhance the reps' sales efforts. Actively listen. Communicate frequently with phone calls, newsletters, applications notes, success stories, and scheduled visits. Have pro-active sales meetings at least annually, and more frequently if possible. Try to plan these so they do not compete with other events like Semicon, etc. Leave time for open discussions at these meetings -- don't lecture all day. Keep your extended sales force excited about your product. Encourage your staff to listen, learn, and act.

Management needs to insist on superior communications in all aspects of business. The "same day rule" must be implemented. The same day rule says that all communications must be acknowledged on the same day they are received—no exceptions. You may not have the answer to the question posed, but you must acknowledge receipt of the query and an estimated date/time for the answer. One practical method is to respond to all faxes, emails, and voice mails when you arrive at work the first thing each morning. Another is to maintain business hours which coincide with those of your major customer base. That is, if you are located in the Eastern US and your main business is in the Western US, have someone available to answer calls until 8:00 PM Eastern time. By extension, if the major business is in Asia, have a person available to them during their normal business hours.

Anecdotally, it is the author's observation that communications are generally good at the beginning of a product's life but that they degrade as a product and company becomes successful. This is because complexity accompanies success and it is easier to gloss over poor performance in a complex environment.

Commitment

As a principal, do what you say you will do. Do not overcommit. This means do not over-spec the product's performance, do not make unrealistic delivery promises or reliability claims—commit only to those things you can reasonably accomplish. Insist that the reps and distributors meet their commitments—forecasts and quotas. Expect excellence.

Understand that no business relationship is perfect. Expect small deviations in plan and occasional corrective actions. Try to understand all the cultural imperatives and total situations before taking irreversible actions. Plan to maintain your commitment to the rep and distributor for a minimum period of two to three years in North America and three to five years in Asia and Europe. Most principals "go direct" too soon in their product life. Absolutely avoid jumping from rep to rep for small perceived gains. These small gains are almost always miniscule when compared to the bad will and unstable reputation they project.

Trust

Management needs to acknowledge that the whole relationship is mutually dependent—each party needs the other for success. This type of relationship requires exemplary business practices and, importantly, mutual trust. Once again, straightforward communications is the key to nurture and maintain this trust. Aggressively support the reps and distributors within the company. Do not allow an "us versus them" attitude to develop. All parties should understand that the reps and distributors are making a significant investment in the start up venture by virtue of their participation. They are using their reputations, knowledge of local lore, and access to key customers for the betterment of your venture. Reps and distributors need to be able to recoup their early stage investment of time and money by making a multiple of that investment in commissions.

Professionalism

All parties—reps, distributors, and principals—are professionals. They should all be treated with respect in an ethical and businesslike manner. Encourage "win-win" scenarios. Avoid "win-lose" and "lose-lose" situations. Demonstrate excellence on your own and expect similar excellence from your sales partners. When the time comes to part company with a rep or distributor who has helped you to success, do so with adequate warning and in a professional manner. Do not burn any bridges—you may have to retreat if things go bad.

What are the negatives associated with reps and distributors?

Reps and distributors aren't perfect. In Japan, distributors tend to act as filters and only report good news, sheltering the bad news. Managers need to know bad news immediately...good news can wait. In Korea, personal relationships and friendships are overwhelmingly important. A potential rep may look good on paper but be a poor choice because they are not well-connected. With all reps and distributors, some products get lost in the shuffle.

The topics listed below are a few key areas which need to be understood in relationships with reps and distributors.

Lack of control

Knowing that principals come and go over time, reps and distributors maintain primary loyalty to their long-term customers. This creates the classical paradox: new companies employ reps and distributors because of relationships with customers; however, when the going gets tough the principals are unable to force control on the selling process. Reps and distributors will urge capitulation to customer's demands. This lack of direct sales control is probably the biggest reason for moving to a direct selling environment.

Cost

In the early stages of a company or product life, it is very economical to employ reps and distributors. As previously stated, reps are an incremental expense and distributors act as a financial and technical buffer. In a mature market, the costs of sales associated with reps and distributors can be very high. In these cases, a principal either negotiates a new discount/commission or goes direct.

Focus

Reps and distributors maintain multiple product lines in various stages of development. Because of this, it is very hard for them to maintain focus and amass the expertise in a single product offering. This is particularly true if there is an extremely high technical content in the sale. Reps are also pragmatic businessmen. They understand that their relationships with principals are transient. Regardless if they do very well or very poorly, ultimately they will be replaced by direct personnel after a product becomes established in the market. For this reason, they must keep new products and companies flowing through their line cards. This very phenomenon tends to dilute the focus they can exert on a single product or company.

Customer preference

After a company or product has been established in the market, some customers prefer to deal directly with the manufacturer. This is particularly true for production equipment which is critical to the customer's overall success. Examples are lithography, deposition, etch, and process control products. Ancillary products are not as susceptible to this phenomenon.

Summary

Be comfortable with your choices for reps and distributors. They represent an extension of your own company and you, as manager. You should hope that the reps and distributors become wealthy as a result of selling your products. If they do, so do you. In the early stages of a company's or product's growth, the economic realities of using reps and distributors far outweighs the costs of trying to pioneer a new capability into an unwilling market space.

The late Bob Graham (of Novellus and Applied) used to say that you never wanted to be a "pioneer" because they were the ones who ended up with arrows in their backs. It was better to be a "settler" because they reaped the fruits of the labor of the early pioneers. Use the reps and distributors as the pioneers and settle with your own sales force when the time is right.