New models of sales

It may be possible to increase sales productivity by attempting new methods of sales allocation.

by Scott Benfield

If you review the outside sales models of industrial distributors, you will find some common practices. Most distributors allocate their sales effort on a geographic basis. Simply put, distributors assign salespeople a geographic territory of accounts and pay them some type of salary plus commission on the account sales.

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While geographic allocation has been the standard for industrial distributors for more than 75 years, it has some severe limitations that don’t allow for maximum productivity of the sales effort. 

For example:
• The geographic territory attempts to limit the distance between customers to maximize the number of sales calls in a given time frame. Increasingly, however, distance is becoming less of a limitation as more of the work of selling is being done by phone, fax and e-mail.
• Geographic selling does not answer special needs of customers and skills of sellers. It is a one-size-fits-all answer to the sales function.
• Geographic territories often developed around sales compensation. Sales managers aggregate enough accounts to fund the gross margin dollars needed to “afford” a seller.
• And, finally, geographic allocations often do not include analyses of whether or not customers want to see a salesperson or can afford to see a salesperson.

Benfield Consulting’s research into the industrial distributor sales function finds that many industrial MRO, OEM and capital project customers don’t want to see the industrial outside seller as much as he/she currently comes around. (Read Valuing the outside sales effort)  The research also points to a real need for distributors to rethink the use of the sales force to maximize productivity of a costly asset and provide strategic growth.

Let marketing strategy and 
operations execution drive sales
There are approximately six models of sales allocation beyond the current geographic assignments. While each model often has an assigned geographic sales territory, the models are not driven by distance. Instead, they’re driven by the market need of the customer segment and the ability of the distributor to support the service platform.

This thinking involves change that often goes beyond the traditional changes to geographic territories which include realignment of accounts. Instead, distributors will be forced to align their sales models with the identified segment needs and the underlying operations platform of services. Without these fundamental organizational changes, many of the new models will not work and may cause more damage than intended.

The new models of sales allocation are defined below. While the descriptions are brief, they may incite you to read more on the subject. Refer to the chapter on this topic in the newly released “Facing the Forces of Change Outlook 2003” by the National Association of Wholesaler-Distributors.

Segment-based sales force. This model is driven around customer segments. The model is predicated by the distributor’s ability to develop good market segments that are measurable, substantial, accessible and actionable. Common segment logic includes application segments such as two-digit SIC codes; general industry descriptions such as foundries, steel manufacturing, forging and stamping; or technical needs of the account. Segment sales forces should be supported by segmented pricing and proper development of services pertinent to the defined segment.

Functional sales force. The functional sales force defines sellers by their functions including technical, new product, new account, missionary, or relationship. Each function requires designation and support of a specific sales effort. Also key to functional sellers is the appropriate selection of salespeople with the correct skill set and personality type to fit into each of the functional roles.

Consultative sales force. For distribution, consultative sellers are the outgrowth of the service economy. Many distributors are turning toward new and unique services for differentiation. New services include any variety of services needed by customers including product testing and recommendation, schematic design, plant and production line layout, information services, training services, etc. To support the consultative seller, the distributor should have well-defined new services and a new service development process to keep the position viable.

Enterprise sales force. The enterprise sales force is a label for firm-to-firm sales projects of long duration, complexity and sophistication. A large-scale managed inventory project requires an enterprise sales effort. Typically, enterprise sellers are managers with an in-depth understanding of the capabilities of their employer and keen insight into the needs of the customer. Enterprise projects include large-scale interactions such as managed inventory agreements, supply chain projects, joint marketing ventures and reverse channel projects.

Any project that requires a substantial commitment of time and resources between companies is where the enterprise seller is needed. Because of the complexity and capital commitment of enterprise projects, the research finds that the majority of enterprise relationships (65 percent) fail within the first year. Therefore, it is important for the distributor to have a list of projects that can be supported by IT and operations for the enterprise seller to work toward.

Transactional sales force. The transactional sales force is the most difficult to copy and disruptive of the new sales models. Transactional selling is a low-cost method of soliciting and servicing accounts. Successful transactional distributors have a well-defined list of minimal services and work diligently to take costs out of their business models. The sales effort for the transactional model is done by alternative methods of solicitation, including catalogs, e-commerce, telesales and direct mail. The best advertisement of the transactional sales force is the low product price.

For reference, the transactional models exist in other industries, including air travel (Southwest Airlines), steel manufacturing (Nucor Steel) and retailing (Wal-Mart).

Hybrid/Queuing sales force. The hybrid/ queuing model is predicated on the dual roles of the seller. Inside sales doubling as outside sellers are the most common types of hybrid/queuing models in distribution. Queuing can be done by any number of methods, including: fixed schedules of outside calls (out on Tuesdays), customer need (technical support), and route calls. The hybrid/queuing model is a reasonably easy sales method to transition to and is finding increased usage among industrial distributors.

What about the sales manager?
In the geographic sales model, a sales manager typically governs the strategies and call plans of salespeople. In the new models of sales allocation, there may not always be a need for a sales manager. Consultative and enterprise sellers are typically top notch employees and manage their time well without the need of a full-time sales manager. Many enterprise sellers report directly to the corporate officers. Hybrid/queuing sales forces often report to the branch or regional manager.

The idea of a fixed-position sales manager may be the way distribution has developed the professional sales force. Increasingly, however, there are numerous roles that are performed by the sales manager outside of selling, if the position is needed at all.

The need for new models of sales allocation is driven primarily by maturing products and markets in industrial distribution. As cost becomes a determining factor, the roles of the seller will be pushed to increase productivity with demonstrable value.

The customer is increasingly less willing to fund inefficiencies or fixed-position employees who don’t reduce costs or demonstrate new methods of increasing productivity. The days of having a fixed geographic territory, earning a commission on total margin dollars, and making unannounced route calls will fade into memory as customers drive for more efficiencies in the industrial channel.

Scott Benfield is a consultant for industrial manufacturers and distributors. He can be reached at bnfldgp@aol.com or by phone at (630)-428-9311. He will give a presentation on this topic at the I.D.A./ISMA Fall Convention on Nov. 23.

This article originally appeared in the I.D.A./ISMA Fall Convention 2002 issue of Progressive Distributor. Copyright 2002.

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