In our previous installment, we discussed the types of selling that will become prominent as digital commerce grows in distribution. These sales models are, for the most part, not unique; however, they will become more specialized as technology changes the role of sellers, adds transparency to the supply chain and gives customers more price/value choices.
Many of today’s sales types are activity-based and role-based with titles such as consultative, enterprise, territory manager, etc. Sales roles follow the marketing strategy of the distribution firm, but this is changing. As digitization grows, channels and their service providers’ value become more transparent. Hence sales, the most expensive of distributor functions, is under intense review from both distributor management and customers to quantify the function’s value. The sales model and its integration with technology will become a large part of the marketing strategy and, in many instances, will become indistinguishable from the business model.
Our review of sales models of the recent past indicates they are rooted in the “analog” markets of yesteryear. This means that managerial advice and research took for granted the territory manager or sales generalist model, where maximizing margin dollars was prima facie. Since the financial goal was to drive margin dollars in a time period and specific geography, much attention was paid to sales effectiveness over efficiency.
However, with the ability to search numerous for product and service providers in a short time, efficiency will become increasingly important in the buying decision. And efficiency is often found in how customer-facing disciplines are defined, managed and relayed to the customer.
New Sales Models and Rules of Engagement
As technology improves the transparency of the supply chain, giving customers more exacting price/value options, selling becomes more integrated with technology to the point where the act of selling, depending on the approach, cannot be accomplished without the right technology. The usage of selling and IT dictate customer expectations and become inseparable (see Exhibit 1).
• Commodity Sale. The commodity sale seems, at first glance, redundant as distributors have sold commodities for decades and the products often total over half of all sales. With e-commerce, however, we have commodity specialists called transactional distributors who offer few outside sellers and few branches but a low price and a great online experience.
Firms such as Zoro Tool (www.zoro.com) are an example of commodity specialists. These firms are growing, found in many distributor vertical markets, and are solutions for items that can be shipped without specialized transport or handling. A substantial amount of commodity sales will go to these specialists. However, they take a significant investment in technology and require the best of online experiences as it is a big part of the sales experience.
Transactional distribution is a disruptive commodity sale model and full-sales service/traditional distributors can’t successfully integrate a commodity sales effort in the full-service culture as the cultural clashes create confusion and destroy the service platform.
• Value Sale. This sales model is an effort by the distribution firm to move further into the value chain to differentiate the sale with fee-based services, light manufacturing and post-sales service. Value sale firms require almost a completely different management structure and capability than traditional buy-sell distribution. The distributor has to acquire capital equipment and the information technology to support it, including manufacturing costing software.
Additionally, marketing needs to understand a product development process to maximize the return on investment in new services and products. Our research finds that successful value sale distribution firms have a 50-percent higher chance of having a product/service development process than firms who sell fee-based services. Value sale firms, in general, require significant investments in bolt-on technologies to augment the online experience or help associates with consistent delivery of manufacturing, fee-based service and post-sales service value.
We have high expectations for the value sale firm. It covers many channel issues for customers, and solves customer needs while differentiating the relationship and earning top profit dollars.
• Negotiated Sale. This type of sales firm is a new classification for distributors. As e-commerce allows for more options for customers, basic service platforms become more transparent and flexible. For instance, accounts want special delivery, packaging and handling. In addition, unique products, sales knowledge and account support are demanded by key customers as well as pricing with SPAs. Negotiated sale firms concentrate their service variability on the Pareto customers or customers with significant potential.
Firms that offer flexible services to all customers often have operations issues with over-complexity and mitigate earnings with excess operating capacity to maintain service quality. Hence it is important for negotiated sale firms to define their account strategy. New age disciplines including account-based management are often found in negotiated sale firms.
• Assisted Sale. Often confused with negotiated sale firms and activity, assisted sale firms go to the manufacturer for support in getting the sale. This support is not simply pricing assistance as in an SPA but also has to do with manufacturer-assisted changes in the standard product or service offering to secure the sale. Assisted sales are often found in large orders that ship direct, as well as with large customers who have unique product/service needs outside of what the distributor can provide.
The assisted sale is growing as customers use online search to compare pricing and unique services. Their research causes the specialization of services and products to increase and distributors are often driven back to the manufacturer for help in delivering to customer requests. Both negotiated and assisted sale firms have a need to develop tracking systems for special pricing, products and services that link to the ERP and, if possible, to the vendor.
Today, many distributors use spreadsheets and even paper-notes to track special requests; however, this is inefficient and can cause cost overruns. We will discuss these needs in Part 3 of the series.
The Distributor Sales Effort Future
Much has been written about distribution sales forces. Most distributors, today, classify half of sellers as geographic generalists, with the other half being consultative, enterprise or new/technical product specialists. Our work and research finds that, as digitization grows, so will search and transparency of products and services.
The distributor customer will much more quickly and accurately begin to validate the value of their suppliers. New models of distribution — transactional (commodity), value, negotiated and assisted — are now appearing where the sales effort is indistinguishable from the business model. They can be stand-alone business models or there can be combinations of these models, such as value/assisted selling or negotiated/assisted selling.
Our research finds, however, that trying to master three or four of the models is difficult to do and usually ends up in failure or a poor competitive platform. Our next installment will review the key IT, managerial and human resource needs for each of the models.