Steve Deist, Author at Indian River Consulting Group https://www.ircg.com/blog/author/steve-deist/ Indian River Consulting Group specializes in helping distributors and manufacturers accurately diagnose problems and identify risk-bound alternatives so they can take their next steps confidently. Call us to learn more at 321-956-8617 or contact us now. Fri, 29 Apr 2022 19:51:04 +0000 en-US hourly 1 https://wordpress.org/?v=6.1.1 https://www.ircg.com/wp-content/uploads/2021/04/favicon.ico Steve Deist, Author at Indian River Consulting Group https://www.ircg.com/blog/author/steve-deist/ 32 32 What Really Drives Sales Rep Retention? https://www.ircg.com/blog/sales-compensation/what-really-drives-sales-rep-retention/ Tue, 30 Jun 2015 03:19:26 +0000 https://www.ircg.com/what-really-drives-sales-rep-retention/ Sales retention is critical for wholesaler-distributors. But plans to retain top talent are usually not as effective as leaders think. This blog looks at one of the most critical factors in retaining your front line.

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We work with distributors to realign their sales and marketing investments with the real opportunities for growth. Getting it right at the top is critical to implementing a sustainable market-based sales model. This blog looks at the impact poor sales management can have on retaining your best sales reps.

The greatest challenge for most distributors is developing top sales talent. Distributors rightly see their sales reps as a vital cog in their customer relationships: the key to growth and profitability. And in today’s hyper-competitive environment, operational efficiency and high service levels are just the ante to play the game. Recognizing this, distributor senior executives get personally involved in hiring, and HR departments develop targeted recruiting and development programs.

Sales force retention is equally critical. Distributors recognize this, as well, investing large amounts of time and money in the development and funding of initiatives and incentive plans. But such plans issued from headquarters are generally not nearly as effective in the field as their creators would like. In the course of our sales force re-engineering projects, for example, we are often amazed by the level of delusion regarding corporate dictates. Headquarters staff will assure us that there is 100 percent compliance with a program that reps in the field have never even heard of!

After all, even compelling initiative and incentive programs will quietly die in the field unless branch and sales managers continuously reinforce them and tailor them to local conditions. So the ability of these programs to positively affect retention rates actually depends just as much on the managers implementing them than on the programs themselves.

Similarly, even well-paid reps can become dissatisfied if they don’t feel they are being recognized for their contributions. Managers are in the best position to give such vital reassurances; as a result, the quality of local management can be the biggest factor in a person’s decision to either stay with a company or to hit the road.

The old saying “people don’t quit their company, they quit their boss” is often true; good managers keep good talent happy. Because they are also critical to the successful implementation of corporate retention programs, sales and branch managers are one of the most critical retention tools in a company’s toolbox.

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Nature vs. Nurture in Sales Management https://www.ircg.com/blog/sales-management/nature-vs-nurture-in-sales-management/ Tue, 23 Jun 2015 03:03:21 +0000 https://www.ircg.com/nature-vs-nurture-in-sales-management/ The skills needed to excel as a wholesale distribution sales rep are different than those needed to lead as a sales manager.

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5 Fundamentals for the Wholesale Distribution Sales ManagerWe work with distributors and manufacturers to realign their sales and marketing investments with the real opportunities for growth. This market-based sales model must be backed by effective sales management. This blog looks at why the traditional method of promoting sales reps to management roles is not always the best path without a plan for ongoing training and development.

Great sales reps are often said to be born rather than bred. They demonstrate a natural preference for independence, an innate drive to get things done and an inherent focus on accomplishing goals. These reps are naturally high performers in the sales world because they work hard, put their customers’ priorities first and gain personal satisfaction from their accomplishments.

It makes sense that distributors often promote their highest performing reps into sales and branch management roles when opportunities open up. But the same qualities that make reps great at selling may actually hold them back when they take on management responsibilities.

To succeed in their new roles, these managers must derive satisfaction from the accomplishments of others, not themselves. They must put the priorities of the company first, ahead of individual customers. And they must balance multiple goals by prioritizing and delegating.

Even more challenging, these “accidental managers” often must learn the job on the fly because many companies lack development programs and supporting infrastructure. Faced with a disconnect between their existing skill sets and the new skills they’re now expected to exhibit, these new managers are frequently uneasy in their new roles and can quickly revert to their comfort zones. One manager summarized it by saying: “I only really feel alive when I’m back out on the road, meeting customers.”

So do distributors need to give up on the idea of promoting sales reps into managers and recruit management talent elsewhere? This would be a challenging proposition, because strong sales and branch managers are even harder to find than talented sales reps. The good news is that while great sales reps may be born, great sales managers can be made. The attributes that make good sales managers are generally more “learnable” than the somewhat innate talents that make a good sales rep.

While new sales and branch managers won’t have time to master a long list of new skills as they face the daily challenges of fighting fires with customers, juggling the competing demands of their staffs and successfully delegating tasks, learning just a few key skills can make a big difference.

We outline five such skills in our book The 5 Fundamentals for the Wholesale Distribution Sales Manager, published by the National Association of Wholesaler-Distributors. Whittling it down to five key issues forced us to get clear about what was truly essential, so that you can focus on it as well.

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Steve Deist’s Insight on Profit Improvement Plans Featured in MDM’s Tip of the Week https://www.ircg.com/blog/business-strategy/steve-deist-s-insight-on-profit-improvement-plans-featured-in-mdm-s-tip-of-the-week/ Thu, 11 Jun 2015 22:02:03 +0000 https://www.ircg.com/steve-deist-s-insight-on-profit-improvement-plans-featured-in-mdm-s-tip-of-the-week/ IRCG's Steve Deist was recently featured by MDM in its weekly Management Tip of the Week for distributors.

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Profit improvement plans offer a low-risk and tactical way to implement customer-specific pricing improvement, according to Steve Deist, IRCG partner, in this week’s Management Tip of the Week from Modern Distribution Management.

Read more on improving profitability at the account level on MDM’s website.

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The Value of Data in Aligning Resources to Market Opportunities https://www.ircg.com/blog/business-strategy/use-data-to-determine-where-to-invest-your-resources/ Wed, 10 Jun 2015 20:09:06 +0000 https://www.ircg.com/use-data-to-determine-where-to-invest-your-resources/ "Analytics are important for every business. You want to base your decisions on facts, on data, rather than anecdotes." That’s the message Indian River Consulting Group’s Steve Deist presents in the latest Executive Briefing program from Modern Distribution Management.

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IRCG’s Steve Deist featured in latest MDM Executive Briefing program

“Analytics are important for every business. You want to base your decisions on facts, on data, rather than anecdotes.” That’s the message Indian River Consulting Group’s Steve Deist presents in the latest Executive Briefing program from Modern Distribution Management.

The program features the contributing authors to MDM’s book, The Distributor’s Guide to Analytics. Steve wrote on Market Access Analytics for the compilation.

Steve told MDM that distributors should use data to determine whether they are investing based on what will present the greatest return for their businesses vs. the latest trends. Distributors have typically gone to market with a one-size-fits-all approach, he says. But market access is about analyzing your business’s resources and market and recalibrating so that you are applying those resources in the most effective way.

“It’s about understanding which customers value which types of services and aligning resources to fit. Successful distributors have that figured out,” Steve says.

Hear more from Steve, starting at a little after 2 minutes, in the full program below:

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My Price or Yours? https://www.ircg.com/blog/distribution/my-price-or-yours/ Thu, 23 Apr 2015 20:31:11 +0000 https://www.ircg.com/my-price-or-yours/ This blog summarizes the most important lessons that our consulting firm has learned about effective pricing in wholesale distribution.

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Best practices in pricing for wholesaler-distributors

Pricing has become a hot topic with distributors over the past few years, and for good reason. It’s not uncommon for a successful initiative to improve gross margins by two points or more. Because this improvement drops straight to the bottom line, the profit impact can be huge. Several clients have told me that pricing projects literally saved their companies during the Great Recession.

Of course, nothing this good ever comes easy or without risk. In this blog post, I’ll summarize some of the most important lessons that our consulting firm has learned about effective pricing in wholesale distribution.

The first lesson: Start by thinking strategically, taking a long-term, market perspective rather than just an opportunistic, profit-and-loss view. If you are starting at how much more you can squeeze out of unsuspecting customers, you will face a far higher risk of customer backlash. You are also less likely to realize sustained margin improvements.

Distributors generally rely on what is technically known as a customer intimacy strategy. This means that success rests on long-standing relationships and maximizing the lifetime value of customers. A customer’s aggregate, ongoing revenue stream is more important than the profit from any particular order. (As an aside, this dynamic is different from other industries such as airlines or home builders, where maximizing each transaction is the right approach).

Fundamentally, pricing strategy should be based on capturing the value that you deliver; it’s not about deceiving or tricking customers. Relying on ignorance or habit is not a viable approach, especially in the information-everywhere-social-media age in which we live today. Sure, you can probably sneak in price increases on low-volume items and get away with it for a while. But at some point the changes will be recognized and you will have to be offering enough value to justify it. Pricing projects are notorious for showing major margin gains up front that melt away over time. The last thing you want is for a loyal customer to catch you “speeding.” You run the risk that a small-dollar pricing gain destroys the trust that you’ve built, leaving you with a suspicious customer who now examines every invoice with a magnifying glass.

With this mindset, pricing optimization is largely about finding the customers and situations for which you are not being paid market value for the services provided. You may be over-serving some of your customers, who would be willing to pay more to buy from you. But other customers may be all too happy to switch you out for a few pennies. Ultimately, more effective pricing requires that you can differentiate between the two scenarios.

It’s important to remember that “market value” is not what you think you’re worth, but what your customers think you’re worth. You may feel that superior technical knowledge at your counter or face-to-face field sales calls are really important. But if a customer chooses to buy from Amazon instead she is telling you loud and clear that these services are not worth a price premium.

A good way to discover where you are over-serving or underpricing customers is to search for patterns where similar customers get radically different prices. More likely than not, customers at the higher end are paying closer to market value while those at the lower end are being underpriced. Root cause analysis will often show that these situations are the result of giving sales reps too much discretion, too little guidance and/or insufficient information to make good decisions.

It’s difficult for most distributors to do effective external research on market pricing because their price levels tend to be customer-specific. While most industries may have a handful of price levels for a particular product, distributors may have hundreds or thousands, none of which are published. For this reason, pricing consultants and software companies typically rely on internal transactional data to find underpricing opportunities.

The assumption is that customers are typically less price sensitive on items that they buy infrequently or that make up a small portion of their total purchases. These methods have proven to be effective, but you should always remember that transactional characteristics are only proxies, or indicators, of customer sensitivity. There’s no rule that customers will always be less sensitive on C and D items than on A and B items, or that smaller or lower-profit customers will pay more. Customers don’t care about your pricing categories or how much they cost you to serve. They care about their overall cost for the product/service bundle that meets their minimum needs.

Before starting any major pricing initiative, develop a clear picture of the current state of your pricing. Create a simple pie chart showing the percentage of order lines priced using each of the available methods (e.g. standard column or matrix, customer contract, special project deal, vendor supported discount, sales rep override). Create a second chart showing the percentage of sales dollars broken out into these same categories. There’s a good chance that producing these charts will be eye-opening all by itself. We’ve often found that companies don’t have clean-enough data or even a systematic way of determining which method was actually used.

These pie charts ensure that you point your pricing efforts in the right direction. For example, it’s pointless to invest in updating all the pricing columns or matrices in your ERP system if these are overridden most of the time anyway.

The following table summarizes the high-level implications of your pricing method breakdown:.

Pricing Graphic

Class-leading distributors treat pricing as a process, not a one-time project. They assign pricing responsibility at the executive level; invest resources to continuously monitor and improve pricing realization; and have systematic feedback loops to objectively measure the impact of changes. We’ve found the best results when the pricing owner is in a product management or product marketing role. If measured on product profitability, she will be well-placed to make appropriate trade-offs between gross margin percentage (speed) and revenue volume (altitude). Sometimes lowering prices will actually generate more total gross margin dollars, not to mention give the sales reps competitive weapons to open doors.

If pricing responsibility falls to the financial side of the company, policies may be too strict or aggressive, leading to poor adoption with excessive overrides or exceptions. Because they don’t have daily customer interaction, internal accounting staff may be naïve about the level of competitive intensity or risk of customer alienation. On the other hand, giving the responsibility to the sales organization may lead to the opposite extreme: a timid implementation with loose rules that fade over time.

In fact, it’s common for a distributor’s sales force to be a far bigger impediment to improved profit through pricing initiatives than its customers. But this is just another reason to approach the opportunity strategically. If your sales team sees that you’ve done your homework and that the intention is for pricing to be consistent and fair, they will be far more receptive. Here’s a great reality check: Do a role play exercise with one of your reps in which you act like an aggrieved customer who has just received a price increase. If the sales rep can successfully explain a justification you’ve both done your jobs.

Give us a call today at 321-956-8617 to discuss this important topic or fill out our contact form.

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The Use and Abuse of Customer Profitability Analytics https://www.ircg.com/blog/distribution/the-use-and-abuse-of-customer-profitability-analytics/ Sat, 14 Mar 2015 02:02:06 +0000 https://www.ircg.com/the-use-and-abuse-of-customer-profitability-analytics/ Over the past couple of months, a series of IRCG articles on the use and abuse of customer profitability analytics has appeared in Modern Distribution Management’s premium newsletter for wholesale distribution executives.

 

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Modern Distribution Management - Customer Profitability Analytics SeriesOver the past couple of months, a series of articles from IRCG Partner Steve Deist has appeared in Modern Distribution Management’s premium newsletter for wholesale distribution executives.

In the series – The Use and Abuse of Customer Profitability Analytics – Steve presents some of the most common business mistakes distributors make when deploying customer profitability tools. He wraps up the three-part series with a look at how improved market access can drive long-term growth in both a distributor’s profitability and its market share.

Subscribers can access the articles starting with Part 1 at the MDM website.

Give IRCG a call today at 321-956-8617 to talk about how you can more effectively deploy your sales and marketing resources. Or contact us now.

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Distributor’s Guide to Analytics Now Available https://www.ircg.com/blog/distribution/distributor-s-guide-to-analytics-now-available/ Tue, 10 Mar 2015 01:05:45 +0000 https://www.ircg.com/distributor-s-guide-to-analytics-now-available/ Indian River Consulting Group Partner Steve Deist is featured in the new MDM compendium, The Distributor’s Guide to Analytics.

In his chapter, Steve helps readers understand the impact that data can have on a wholesale distribution company when it deploys the sales team more effectively and properly aligns resources with market opportunities.

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Distributors Guide to Analytics store coverIndian River Consulting Group Partner Steve Deist is featured in the new MDM compendium, The Distributor’s Guide to Analytics.

In his chapter, Steve helps readers understand the impact that data can have on a wholesale distribution company when it deploys the sales team more effectively and properly aligns resources with market opportunities.

But distributors have to go beyond just numbers. He writes: “Numbers don’t add up to a plan. For distributors, the how-to plan will inevitably involve the sales force, which is usually the biggest single expense category and the most powerful competitive weapon – indeed, the heart of most distributor organizations.”

His chapter in the book, “Market Access Analytics: Use Data to Deploy Sales & Marketing Effective,” is about translating analytics into action on the front lines.

Get your copy from Modern Distribution Management.

Give IRCG a call today at 321-956-8617 to talk about how you can more effectively deploy your sales and marketing resources. Or contact us now.

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Prepare for 2015 by Deciding What Not to Do https://www.ircg.com/blog/business-strategy/prepare-for-2015-by-deciding-what-not-to-do-video/ Wed, 17 Dec 2014 03:23:29 +0000 https://www.ircg.com/prepare-for-2015-by-deciding-what-not-to-do-video/ Indian River Consulting Group Partner Steve Deist was recently interviewed by Modern Distribution Management for its monthly Executive Briefing.

 

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Indian River Consulting Group Partner Steve Deist was recently interviewed by Modern Distribution Management for its monthly Executive Briefing.

The message: A number is not a plan. Steve told MDM Associate Editor Eric Smith that relying on numbers can tell you where your company has been, but it doesn’t give you a roadmap for where to go next.

Read MDM’s summary of the interview with Eric Smith.

And listen to Steve’s interview below:

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How to Go from Too Many Distributors to Just Right https://www.ircg.com/blog/manufacturing/how-to-go-from-too-many-distributors-to-just-right/ Thu, 06 Nov 2014 22:48:39 +0000 https://www.ircg.com/how-to-go-from-too-many-distributors-to-just-right/ Manufacturers are always struggling with whether or not they have the right distribution plan. They want to understand if they have the right number of distributors and if the distributors that they have can meet their needs. At Indian River Consulting Group we recommend a four-step process to help manufacturers properly evaluate and optimize their distributor network.

 

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How manufacturers can evaluate and optimize their distributor networks

Steve DeistManufacturers are always struggling with whether or not they have the right distribution plan. They want to understand if they have the right number of distributors and if the distributors that they have can meet their needs. At Indian River Consulting Group we recommend a four-step process to help manufacturers properly evaluate and optimize their distributor network.

This optimization plan addresses channel strategy for mature vs. growing brands and coverage options from national vs. regional distributors, among other issues. The plan’s scorecard provides a roadmap for future supplier/distributor decisions.

We will talk more about the four-step process and scorecard later. First, let’s look at how manufacturers got here.

Manufacturer A used to have six distributors in Chicago and now they have 15 . . . how in the world did that happen? Depending on the industry, one of the main culprits of coverage creep is consolidation. Regional and national distributors get larger by buying independent locations. Some of these locations were authorized distributors for a manufacturer’s products and some were not. As these regional and national distributors grow, more power shifts from the manufacturer to the distributor. As the distributors get more powerful, it becomes more and more difficult to say no when they add a previously unauthorized location to the distribution network.

Another cause of coverage creep is “pull through” by customers. A manufacturer has a customer who is finally interested in using its product, but guess what? Its favorite distributor is not an authorized reseller. The manufacturer wants the business, and authorizes a new distributor. That may be the only customer the distributor ever sells the product to, but now the manufacturer has a new customer/distributor to deal with.

Coverage creep also comes from the annual push for increased sales. Without clear direction, some salespeople will try to find additional sales by adding more distributors. Each one may not account for a lot of sales, but collectively they may get the sales rep close to quota. They also add to administrative costs. Everyone knows this strategy has limits and may backfire.

If coverage creep adds unwanted or unneeded distributors, what can manufacturers do about it, and should they care? Yes, manufacturers absolutely should care. Assuming the manufacturer’s products hold at least a primary or secondary position in a distributor’s business, manufacturers who are chasing sales end up with essentially open distribution where almost anyone can sell their product. What they really need is a selective distribution strategy, which was the original plan.

(Learn more about Indian River Consulting Group’s experience and expertise in channel management.)

To assess your own firm’s situation, take this short quiz:

Question 1: Are your products at least secondary in a distributor’s business?
There is a rule of thumb about coverage and how important your products are to a distributor. The more important your products are to the distributor in the overall scheme of things, the fewer distributors you will need, because the ones you have will be focused on selling your products. Conversely, the less important or more easily duplicated the product is, the more distributors you will need to achieve your sales goals.

Question 2: Are you in a growing market?
If you are fortunate enough to be in a growing market, you should have selective distribution with authorized locations. Growing markets typically require distributor investment to support the product and customers. With a growing brand, you want to make sure your distributors can make money by investing in and selling your brand.

Question 3: Do you have a well-established brand?
If your brand is well established and has value in the marketplace, you have the right to be selective in your distributor network. Well-established brands open doors for distributors and their salespeople, and for other products. You can also hitchhike less popular brands in your own portfolio if you are providing select distributors with well-known brands.

Question 4: Are your brands profitable?
If your brands are not price competitive and your distributors are always looking for better pricing, you are entering the dangerous territory of commoditization. Your distributors will only negotiate so long before moving to more popular, more profitable, and better-established brands.

Question 5: Do your salespeople tell you that you have too many distributors?
If the salespeople are telling you that you have too many distributors, you probably do, because they will do anything to protect sales volume. Properly trained and incentivized, no one is better able to answer this question than those sales reps in the field. They are trying to manage sales and territory coverage every day. Additionally, with the proper tools and guidance, the sales reps can help you find the right distributors.

Now that you have taken the quiz, do you care if you have too many distributors? After looking at your answers and based on your product offerings, should you care? If you do, the following is an optimization plan that we have seen successfully implemented to help organizations like yours efficiently manage their distributor network.

Indian River Consulting Group Distribution Optimization Plan

Before you start down this path, you have to believe the following:

  • Senior management must manage the optimization plan. A taskforce can help with the plan and field salespeople who know the distributors should provide input, but this is a strategic initiative for which senior management must take the lead role. Additionally, field salespeople may let personal relationships hinder objectivity.
  • Field salespeople are responsible for growing market share in their territory and should be able to manage against market share goals.
  • Field salespeople have the authority to implement optimization plans without being undermined by management.
  • Field salespeople and customer service reps receive education and training on how to implement the optimization process.

If the optimization process is in alignment, it provides a win for the sales rep, the distributor and the company.
If you are a believer, you are halfway there. The rest is about setting direction, providing guidelines and supporting your sales organization as they go through this process.

Step 1 – Get Input and Support

It is critical to get input and support from several functional areas in your organization. A good way to accomplish this is to put together an optimization taskforce comprised predominantly of sales and customer service people. The taskforce should also include people from marketing and marketing communications, finance, IT and legal.

The marketing department will support the optimization efforts in part by providing appropriate programs that will pull sales through the existing distributors rather than letting them go to the “terminated” distributors. Marketing can also help communicate the optimization project to the internal and external world. Finance should support the effort with financial data for each territory as well as credit history for each distributor.

IT will need to support the field sales force with critical information needed from sales and finance. It is important, no, make that critical, that the legal department approves the criteria for terminating distributors. Administratively, the legal department will determine your responsibility to terminated distributors and see that the proper paperwork is forwarded to all terminated distributors. All departments will have the responsibility to act as communication agents and champions of the optimization process efforts internally.

Use the taskforce to define the plan, gather pertinent data in support of the plan and put together a timeline of tasks to be completed and by whom. As outlined above, each of the taskforce members will have responsibility for some tasks.

Step 2 – Decide Whom to Optimize

Optimization should take at least two rounds of culling in order to select the key distributors. Selecting distributors in the first round can be pretty easy because your sales force probably has the list of the key distributors in their heads, if not on paper. What you are looking for in the first round is the low-hanging fruit, the distributors who act more like brokers or agents of your product and provide very little value in the selling process other than product availability and price. This is a good place to start to develop optimization criteria. For example, an optimization taskforce we worked with recently decided that if an existing distributor failed to meet any of the following criteria, it was eligible to be rationalized in the first round (remember, it’s still senior management’s decision with field sales reps’ input):

  • The financial strength to support, grow and invest
  • A succession plan in place to assure continuity
  • The necessary physical facilities/equipment to support their customer base
  • Integrity in all dealings
  • A qualified and adequate sales force for the product line
  • The right amount of inventory
  • A location which is of strategic importance

In this example, because of the criteria, the manufacturer got a much larger list of potential distributors to be rationalized than they expected. This helped it get a good start on a final number of distributors that made sense for its products. Remember, the optimization/rationalization process is as much about getting the right distributors as it is about terminating the wrong distributors.
After thoroughly educating and training each and every member of the sales force and customer service organization about the plan and the criteria, prepare a termination letter with the blessing of your legal department. These letters should be sent from the corporate legal department and should be sent certified. There is nothing more embarrassing than having a rationalized distributor not receive this letter, and hear about the termination from an outside source. This also could prove legally challenging. Because franchise and distributor agreement laws differ from state to state, your legal department may find that you need different termination letters for distributors in different states.

During this step, the taskforce will also have to devise a list of items that will come up when the salespeople meet with rationalized distributors. Here is a quick checklist of some of the items on the list:

  • What do we do about orders in the pipeline?
  • What do we do about existing inventory?
  • What about credits or warranty work due customers?
  • What about A/R owed by the distributor to us?
  • What will be our message when the distributor asks, “Why did you pull the line from us?”
  • What will be our message when the distributor asks, “Is there anything we can do to get the line back?”

There may well be hundreds of questions that need to be asked, answered and communicated to everyone in the organization who touches the optimization process. A well scripted set of answers is critical because your message has to be consistent.

A word about national and regional distributor organizations:

These national and regional distributor organizations may be the companies that caused some of your over-distribution issues to begin with, and some of them probably sell a lot of your product. You have to determine what will happen with their locations that do not meet the initial criteria. Even though they fall into the same bucket, are they treated any differently from independents that do not support your efforts to effectively manage your territory? That depends on a couple of things. The criteria in Step 2 and Step 3 should apply to all locations; you cannot abdicate your authority and responsibility to a channel member to put together the best coverage of your product. That said, the senior management of these national organizations might have power to get underperforming distributor locations up to speed. Conversely, not getting everyone up to speed will affect your credibility with other distributors. If you bend the rules, beware of false promises and have a specific plan to address issues. Remember, national and regional distributors will always say, “give to all of my locations and we will support.” You have to be willing to have some difficult conversations with larger distributor organizations in order for an optimization plan to have any credibility and any chance of success.

Step 3 – Tighten the Criteria

The first set of criteria was subjective, a bit more art than science, and should have resulted in eliminating the obvious candidates. If you do not do anything else, you will be ahead of the game. However, the next step refines the process to a combination of art and science. The science comes from data; the art comes from how the sales force uses the data to work with the distributor.

Continuing with our previous example, the taskforce devised the following performance measures, each with a different weight:

  • End of year sales (from finance) Highest weight
  • Profitability of distributor (from finance) Next highest weight
  • Number of certified customers supported (from sales rep) Next highest
  • Products inventoried (from sales rep) Second to lowest
  • Exclusivity/brands carried Index (from sales rep) Lowest weight

Each distributor receives a numeric value for each category. For example, the profitability could range from -2% to +10%. The value is then multiplied by the assigned weight (which could, for example, range from 1 to 5) to determine a numerical score. You compile all of the values on a spreadsheet and then rank the distributors in a territory based on the values. The distributor with the highest total value ranks No. 1, etc. The result is a scorecard ranking of your distributors.

Here is a possible scenario: you have eliminated several distributor locations that did not meet the “must have” criteria in the first step. Those candidates were obvious, but you still have too many distributors in a large trading area and they all meet the “must have” criteria. What criteria do you use to make the next cut? What facts do you need to help with the decision? This is one of the values of the scorecard.

The scorecard will not tell you how many, but it will give you a much more objective view of how your existing distributors stack up against each other. For example, if you have six distributors in a large trading area, and your knowledge of the territory says five is all you really need, you need to objectively decide which one will be eliminated. After entering all the data in the Scorecard for your territory (or trading area), you will have ranked the distributors accurately from most desirable to least desirable. The basis for the ranking is the values you have determined to be important. You will know who ranks sixth and thus who would be the most likely candidate for termination.

Step 4 – Use the Scorecard to Manage Existing Distributors

Once you have optimized the number of distributors in each territory, then the real value of the scorecard becomes even more evident. It can help your field salespeople manage existing relationships more professionally. You have decided what values you are looking for from distributors (in the previous example it was sales, profit, succession plans, customer coverage, inventory/customer service and exclusivity/commitment). Your performance values are the ones that you want to maintain and monitor. These are the areas that you want to manage in the distributor relationship. Now you have a quantitative way to do that. Your field salespeople can use the scorecard with their distributors on a regular basis to monitor progress and constantly reinforce to your distributor partners (and to your sales force) what you expect from distributor partners.

Summary

Followed carefully, this optimization plan will help manufacturers clean up their distributor network and enhance future supplier/distributor relationships. In addition, utilizing this plan will help surviving distributors succeed with your products by:

  • Providing a focused scorecard outlining responsibilities and expectations
  • Allowing distributors to profitably sell your products
  • Providing a roadmap for future supplier/distributor decisions

Learn more about Indian River Consulting Group’s experience and expertise in channel management.

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Avoid the CRM Trap https://www.ircg.com/blog/distribution/avoid-the-crm-trap/ Thu, 06 Nov 2014 22:36:13 +0000 https://www.ircg.com/avoid-the-crm-trap/ Customer relationship management (CRM) software is only a tool and only one piece of the “sales fitness” equation. Successful people have good habits and the tools make goals easier to accomplish. The best tools in the world will not make up for bad behavior.

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How to reduce the risk of failure and increase chances of success with CRM

Do you know anyone who buys the newest piece of exercise equipment, and still can’t walk around the block without huffing and puffing? Or, have you met the woman who installs the best closet organizer and still cannot find her shoes? Or, have you ever known a guy who buys the best personal finance software and still can’t balance his checkbook?

Like the examples above, customer relationship management (CRM) software is only a tool and only one piece of the “sales fitness” equation. Successful people have good habits and the tools make goals easier to accomplish. The best tools in the world will not make up for bad behavior.

CRM software continues to suffer the highest failure rate of any enterprise software There are ways to reduce the risk of failure and increase chances of success.

The Original Promise

Back in the old days, business-to-business selling meant establishing and nurturing a personal relationship between your sales rep (usually in the field) and a buyer or other decision maker in the customer’s organization. However, increasing margin pressure, more sophisticated inventory management practices, proliferating logistics options and the emergence of new sales channels turned this cozy world upside down. To quote the title of a famous 2003 Harvard Business Review article, “The Customer Has Escaped” from the one-size-fits-all sales model. Sophisticated buyers have powerful new sourcing tools and are no longer willing to pay for services they do not need. Relationships alone are no longer enough.

The promise of CRM was to address these challenges. It promised to help companies become “customer centric” organizations that could quickly identify and respond to changing needs. The software would provide a seamless view of each customer, tracking all interactions whether in person, over the phone or via the website. By collecting and analyzing this information, CRM would help a company segment its customers, and fine-tune pricing and service levels. This, in turn, would improve profitability. At a tactical level, the software would use integrated reporting and workflow tools to identify daily sales activities to achieve corporate priorities. Companies could identify major leads target important marketing campaigns.

The Reality

All this crunching and steering of customer data utilizing leading edge software is certainly impressive. Unfortunately, the most powerful bits of information do not reside only in a computer data warehouse. They also lie between the ears of the sales rep (or maybe in notes taken by reps during or after customer calls). The type of customer data that is computerized is mostly transactional in nature, because this is what the legacy business systems require to process orders. It’s easy to extract a customer billing address, the number and types of purchases, the number of web page visits and so on. But, without an experienced sales rep to interpret the data, it is difficult to ascertain the customers buying triggers, a competitor’s share of purchases or evolving needs.

The software salesperson’s solution is to get the sales force to feed the system. Executives quickly agree with this solution, because they consider data centralization to be an important benefit of the CRM project; a way for the company to claim its proper ownership over the customer relationship. Many times however, this approach leads to reactions ranging from subtle sabotage to outright insurrection from the sales force. They object to the time it takes to enter the data into the system, after all this eats into precious customer facing activities, and doesn’t add a dollar of sales revenue. Rightly or wrongly, they also fear that divulging critical customer information will make them easier to replace and threaten their commissions.

Finally, the CRM software programs themselves often seem purposely designed to irritate the less-than-computer-savvy sales rep. In fact, they are often less than user friendly with their convoluted screen navigation, geeky nomenclature and functional overkill. Many times all a rep gets is a pretty color chart that summarizes all his manually entered data. At the end of the day, the information does not itself provide any new insight, increase sales or make the reps job any easier.

The net result of adding poorly implemented or explained CRM software is a vicious cycle. Reps do not use the new system because the data is incomplete; for most of them, it is easier to continue working with the old data sources, such as the enterprise resource planning (ERP) system, personal contact lists or paper records. As long as everyone continues working with the old files, the new CRM system isn’t updated, the data inadequacy continues and the vicious cycle is prolonged.

The Tragedy

Assuming you manage to overcome these obstacles, another trap awaits to disrupt the flow of data between different systems. In purely technical terms, it is now relatively easy for top tier CRM packages to interface with the more common ERP, email and contact management systems. However, the business processes for managing these data flows are very thorny and rarely well thought out by either the CRM vendor or the implementing company.

For example, what happens when a new lead is closed and the contact becomes an actual customer, and orders are processed? If the lead is downloaded from the CRM system into the ERP system, you will end up replicating the order entry function on the CRM system, which lacks product, price, credit and inventory information. Keying it directly into the ERP means double entry and no easy way to ensure that the CRM is updated to reflect the lead “win.” There is generally no way to tie the lead reference number on the CRM with the order number on the ERP. It is critical that implementers ask the CRM vendor how their software addresses this issue. “Don’t worry about it, we know it’s in there” is not an acceptable answer. Get assurances that data flows seamlessly.

These kinds of data landmines litter the CRM landscape. For every data element that flows between systems, there must be clear rules as to the steps to enter and update it, how to validate it, how it propagates to different systems and what happens when there is a version conflict. Failure to pay close attention to these issues can be worse than an ineffective implementation: it can jeopardize the integrity of the data needed to run the business.

The Hope

So, how do you ensure that your CRM implementation is one of the 30% that actually succeeds? For a start, recognize that sales performance improvement is not about technology. Most companies make the fundamental mistake of starting with a software selection decision (aka a vendor bake-off) and treating sales processes as a mere “configuration” issue. This is precisely backwards. It is important to understand your sales process first, and then find a software solution that will improve the process, thus making it easier for your sales people to identify needs, and close sales.

Modern CRM packages have more functionality than most companies will ever be able to discover, much less use on a daily basis. There may be functional differentiators that are relevant to a specific company, but identification of these differentiators happens after sales processes have been clearly defined. The challenge is developing effective sales practices, not selecting software based on fancy features.

The following guidelines will greatly improve your chances of success:

Strategy and structure. Before even investigating CRM, you should verify that you have a clear sales strategy and have an aligned sales force structure and process. Strategic sales issues are chronically misdiagnosed as software issues, personnel issues or process issues. So, tactical solutions such as fixing the pay plan, sending everyone out for more training or throwing money at technology are implemented. Simply put, they will not work if the sales force is fundamentally misaligned with the strategy or the company has not clearly defined its sales strategy. If every rep cannot articulate your corporate and specific sales strategy, you will need to fix this first.

Process first, automation second. Automating dumb systems and processes just enables you to do dumb things faster. If selling is still largely witchcraft in your company, rather than a set of defined processes, your chances of implementing a successful CRM system are bleak. Start with developing and implementing a Sales Effectiveness Process to establish best practices in time management, account targeting, pipeline management, territory reviews, customer reviews, sales rep reviews, and so on. Once the formal processes are in place and managed, you will find that a little automation goes a long way.

Bottom up, not top down. Everyone, except a wet baby, resists change. Your sales force will be especially leery of any changes in your sales management system and may suspect that it is nothing more than computer-enhanced micro-management. To mitigate this risk, create a project team comprised primarily of sales reps and managers, and only include the usual techies unless they are trained to listen and respond with solutions, not just jargon. Think about assigning the most vocal CRM critic in your company to the team and challenging them to come up with solutions to the identified problems, rather than just complain. It is not an understatement to say that you should consider sales force buy-in and ownership to be the single most critical factor in success of your CRM implementation.

Give more than you take. Start by implementing the functionality that is most important to the daily users of the CRM system. Sell it as a tool to make their lives easier rather than a new rulebook that demands compliance. In addition, make sure these early tools really do make your sales rep’s lives easier. Reps will find things like scorecards (everyone wants to know how they are doing); call budgeting tools (not call reports!); target account growth data; and online information libraries to be truly useful. As usage expands and deepens, the data to support market analysis and other corporate objectives will build up naturally.

Demand executive commitment. A visible, consistent and long-term commitment by senior executives is essential. The entire company must be convinced that there is no turning back and that the CRM is not just the latest gimmick.

We would all like to get back in shape for $69.99 plus shipping. It is just as tempting to hope that a $50,000 software license fee will vault our sales force into the 21st Century. Unfortunately, modern equipment alone will not win this game. The evolution of sales from a personal relationship craft to repeatable, scalable and strategically aligned processes requires modern management techniques, not more donuts.

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