Globalization, outsourcing, and foreign competitors have caused a revolution for American manufacturers. It began when the Fortune 500 companies began to reorganize themselves, source from foreign competitors and lower their costs. These same large customers began to drive cost reduction from their vendors any way they could. Customers wanted more products and services at lower prices.
From the perspective of suppliers who sold them capital equipment the world of machinery sales changed beyond recognition. The buyers were issuing 50% more specifications with each Request for Quote (RFQ) on capital equipment which increased factory time and the cost of quotations.
Increasingly buyers did not want to buy just a machine; they were interested in companies that could propose and manage complete systems.
Suppliers also realized that customers were selecting foreign products over U.S. made products more and more every year and many of the customers wanted the American supplier to build his product overseas and pass the savings on to the customer.
This revolution caused by globalization was not limited to customers and their supplier companies. It has also caused great changes in sales channels. For instance, customers no longer had the central engineering departments they once enjoyed and began relying on the suppliers sales force to provide the services they used to do in their own engineering departments.
Multi-national companies would not allow independent reps to call on them at their headquarters. They wanted direct engineer to engineer connections. And most importantly the buyers became more demanding and sophisticated and wanted sales people who could answer all of their technical questions. If the rep appeared to know less than the buyer, he would be eased out of the selling game.
All of these changes really affected independent reps and distributors whose selling efforts were based more on personal selling and relationships to customers. In many instances the old selling approaches no longer worked and these rep and distributor firms needed to rethink their business models in terms of new customer demands.
Harry Brown of Mollo and Associates in Erie, Pennsylvania says that the biggest change in selling is that customers want problem solvers and expert advice. He calls the new type of rep a sales engineer “who can offer engineering assistance as a ‘freebie’ with the sales package. In addition to the engineering perk, if manufacturing knowledge (experience) is offered it will enhance a long term relationship.” He goes on to say that “being a pleasant person with a great personality will not carry the day in today’s environment.”
A Radical Shift in Sales Channels
Sales channels and strategies that worked in the past probably won’t work in the future. The sales processes that worked for distributors, manufacturing reps, and integrators 10-15 years ago don’t work very well today for capital and other equipment manufacturers as well as job shops. The tasks required to get the sale have changed dramatically, and suppliers are struggling to develop or find the right distribution and sales channels to support these new customer demands.
Given the fact that almost everything else is changing, it seems clear that your sales channels are affected by the same revolution and they will also have to change to fit the new demands of the marketplace. The bottom line is you are going to have to find the right combination of sales channels that can balance selling costs and tasks.
In addition to these customer driven changes there is one more challenge that will demand re-thinking your sales channels. To grow in this new economy will require an ongoing effort to find new markets and new customers. Many progressive manufacturers are in the process of changing their sales and distribution channels to fit this new mix of customers and their new needs. This requires a bit of experimentation and a thorough examination of all of the tasks involved in a sale. Manufacturers must now re-evaluate whether the sales channel can handle these new tasks or whether they must find a new or different combination of sales channels.
Sales Task Needed
One of the best places to begin when determining the type of sales channel needed is to define the sales tasks that need to be completed for the commission paid. It is a fact that most customers now have leaner staffs and have transferred many tasks they used to do “in-house”, to outside vendors and their sales channels.
It is really worth the time to sit down and review all of the tasks that need to be accomplished to get a sale. Here are some questions that highlight some of the sales tasks that changed in capital equipment sales.
Do your current sales reps have the ability to:
1. Gather all pre-sale technical information?
2..Create complex proposals/quotations?
3. Layout the equipment on the customer’s plant floor?
4 Provide CAD drawings for the customer?
5. Sell to a wide range of customers from small plants to multi-national companies?
6. Manage complete turn-key systems?
7. Stage presentations in front of large engineering groups?
8. Train customers in the operation of the equipment?
9. Perform sales prospecting and generate their own leads?
10.Communicate with customer in terms of answering any technical question?
The second most important factor is the size and requirements of the customer. All 10 of these tasks become more difficult to accomplish when the customers are larger as there are specifications, and very complex request for quotes. In some cases the tasks are so complicated that only the factory can satisfy the needs of the customer.
If you think you may not be getting the best or most cost effective sales coverage for your current customers, or that one type of sales channel cannot fit all customer needs, you may need to consider multiple channels. This means reviewing the types of customers, their individual needs, their buying practices, the tasks the channels perform, the size of the order, and the sales costs.
A manufacturer I will call General Material Handling Systems had used manufacturing reps for many years. But as the projects became more complex and the company sold to more and more large customers, the manufacturers’ rep channels could not handle all of the sales tasks particularly the areas suggestion in questions 2,3,5,6, and 7 listed above.
After a careful examination of the types of customers and the sales tasks they decided that the solution was Multiple Sales Channels. Their sales channels included manufacturing reps, specialized manufacturing reps, major accounts, direct factory sales people and inside sales department
Here are some questions they asked during their sales channel evaluation
- Are some of the customers so large and do they require so much support and specialized services that a sales rep cannot handle them? They did have customers that were very large, multi-national companies with extremely complex buying requirements. They decided that they had to develop a major accounts sales program to meet the needs of the customer.
- There were complex specifications with the RFQ requirements that their independent reps could not answer It was another reason to either establish a major accounts department or change the commission schedule.
- Many customers required layout drawings and answers to very technical questions at the point of sale? .Their answer was to use a highly trained specialized rep that knew as much as factory sales people and only carried a few synergistic product liens.
- Some customers wanted to buy complete systems that were “turn key projects” and must be project managed? The specialized reps could handle some of these systems but most projects had to be managed by a direct factory sales person
- Some customers were in small but identifiable market niches? These were market niches that could be assigned to an independent rep that has a good customer base in this market niche and sells other product lines to the same customers.
- Some customers purchased in quantities or in order sizes that could not justify a FTF sales call. Because of the sales costs these accounts had to be handled with catalogs, and inside sales department.
- Many customers purchased parts or machine upgrades that were too technical or too low in price for reps to handle. The answer again was and Inside sales department
- Some customers were small enough that they didn’t write specifications or have complex RFQs? These customers could usually be handled by an independent rep.
The multiple channel approach worked very well and allowed the company to find many new customers and market niches. It took a lot of experimentation and a flexible commission policy but the manufacturer increased sales from $10 million to $25 million over a period of 8 years.
Sales channels are an often overlooked yet very important part of the sales program. If you have been losing orders or market share it may be that you don’t have the right channels to fit specific customer needs.
The scenario described in this article is now more the standard then the exception. The smart manufacturers and sales channels simply accept these changes and focus their efforts on how to change themselves to fit the new customer and market demands.