Presenter J. Michael Marks INDIAN RIVER CONSULTING GROUP www.ircg.com

1. Creating Competitive Advantage With Manufacturer And Distributor Sales Representative Collaborations12 April 2011 9:15 AM to 10:25 AMMarriott Waterside in Tampa, Florida Presenter J. Michael Marks INDIAN RIVER CONSULTING GROUP www.ircg.com

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3. This Is A UID Program • The slides are a bit busy • The audience is intended to be factory sales reps working through distributor sales reps • There is significant inefficiency in the working relationships between factory reps and distributor reps • Distributor really like good factory sales reps but they are an endangered species • It used to be a destination career position but for many firms it is now morphing into a two year trainee position

4. The Mission of the Manufacturer Sales Rep Is to gain market dominance* for your offering in your assigned geography • Selling is, at the base, customer interruption behavior • You and your boss will have a conspiracy of effectiveness • Success requires efforts of your channel partners who will always act in their own self interest • You need to reward and punish channel partners and not all should like you • You never have to lie, but you are not always nice *~1.4X the number 2 competitor for most of you. Go to www,mdm.com for the Lancaster Equations

5. Rank Each Distributor Rep* * Or branch location

6. The Principle of Calculated Neglect • The distributor’s opinion of your skill and competence changes based on your view of their ability to help you achieve market dominance on your products in your assigned geography • If they are losers, they need to think that you are a loser as well • One or two annual complaints to your boss is the goal • Your evaluation is by location, or person, not corporate entity • You always pay public homage to the big national distributors • If you want everyone to think that you are a great rep- then you are investing time with losers that could get a better return if invested with winners • Never forget your mission

7. Your Position Defines Your Strategy Dollar Share Distributor Product Lines ~1-5 Vendors Primary Products Gap Fillers Mfr says jump, disty says “How high?” Next 5-10 50% Secondary Products Everyone Else ETDBW* always trumps price and quality 30% These products are higher margin and get pulled through with the primary products Tertiary Products 20% Distributors need and nurture secondary and tertiary products to expand their share of spend in their customers * Easy To Do Business With

8. Cost to Serve Considerations Where is your product offering in the distributor product mix? • The nature of the business makes direct cost calculations difficult, as channel partners routinely • Lose money on individual items to secure an overall profitable order • Lose money on individual orders to secure an overall profitable customer • Accept lower margins on high velocity items or strong brands • Manufacturers are often incapable of providing transactional support services for end users (i.e. “mass customization”) • Credit risk analysis and customized terms • Processing millions of small transactions • Providing highly flexible logistics (e.g. deliveries accepted between 6:00 and 6:15 AM on Thursdays only)

9. Managing Your Distributors • It is easy to get them to do what you want- if they can do easy things; repeatedly, at high gross margin • What is the reality of their competing lines, private label brands, and corporate mindshare? • Can you clearly answer the WIIFM question? • It is not to get more sales of your product • It is different for different individuals • What are alternative time investments for your distributor sales reps that make them more money, or feel better, or produce less pain? • How sticky is your product offering to their customers, i.e. do they insist on your brand independent of price- or are they looking for a deal on “or equivalent” products?

10. How to Manage the DistributorOnly if you are Primary or a large Secondary • Annual planning • Your commitments to them: Fill rates and lead time fluctuations, stock rotations, technical & business development support • Their commitments to you: Resale volume and some kind of POS, inventory levels, competitive intelligence • Mutual Commitments to each other: Pricing, freight, and terms, customer creation activities • Quarterly reviews • Milestone measurement, corrective action, intelligence sharing, concurrent training • Customer creation activities • Competitor displacement, joint calls & promos, no “suck up” visits, provision of qualified leads Always Hold Up Your End!

11. How to Manage the DistributorIf you are Tertiary or a small Secondary • Be very easy to do business with (ETDBW) as this trumps price and product performance, hands down • Internet availability & your home phone • Don’t overreach your value to them • Provide some channel compensation to the individual instead of the channel partner firm • Intrinsic (non cash) is also valuable • Develop a pricing strategy that leverages non-recurring investment activities • Discounts for number of reps with a successful sale or demo or passing knowledge tests • Find an internal champion and reward lead “bird-dogging” • You do demand creation and give the orders to your chosen ones

12. How Distributors Think What is my supplier’s channel strategy? • Do they have one and is it clear? • Do the believe in open, selective, or single distribution? • How do they handle national accounts? • Is the product going to pull me business, or bulk up my bundle, or does it need to be sold? • Are they strategy driven or personality driven? • Are they a potential acquiree or an acquirer? • How are they responding to current economic pressures? • How should I trade off brand power and concentration risk? The key question is one of trust and risk, “How responsible is it for me to invest to grow their brand based on the probability that I will get an appropriate long term return on my investment?”

13. Your Economic PowerMarket power is never given, it is taken • You compete with other suppliers by making a case for your features and benefits • Sometimes this is an issue or a non event • Alignment means that you win all the ties where the customer doesn’t care about brand, your product is simply bought and doesn’t need to be sold • Most customers have a preferred distributor rep • If the preferred rep protects your position with the customer, then you will support that rep over the other distributor sales reps • You will not take other competitors into that account • If competitors go on their own, bad accidents will happen to them • You will take the loyal distributor rep into new end users that others have screwed up

14. Tail Characteristics • This term measures how often the product is reordered based on consumption after the original sale - more often is better • It is mostly determined by the end user or contractor, not the distributor rep • Distributor reps are trained to do what is easy • Customer purchase concentration is the largest factor • Always buying from the lowest price firm is low concentration • The hardest ones to get often have the longest tails • Product efficacy and price/performance are not the only selection criteria • What about end user image, brand, distributor bundling, bulk breaking, or cost to switch • You estimate of tail effects is critical to where you invest your time and effort

15. Your Specific Task • Know the preferred distributor of every major user of your products • Your ride-along task is not about selling your stuff, it is about aligning your support to specific customer-distributor rep pairs • Getting this right creates both high latency (resistance to change) and channel power (leverage) with your distributor reps • The dumbest thing that you can do is help a distributor get business that you already have through another distributor • Unless you are intentionally punishing the incumbent distributor rep- then make it very public

16. Real World Coverage Mathand you thought that it was all about you * The product is bought, not sold • There is a naturally occurring number of product purchases in your market- ~90%+ of which are created by customer generated repurchases* • IRCG Research indicates that only a small portion (~10%) are created by a sales rep with a customer who was happy in their current situation • The total number of initial purchases that occur fall into several categories • You get a chance to go head to head and pitch your offering • You never see them- but your distributor does • Neither you nor your distributor sees them • You win some of the type ones and lose some as well • This is about your skill as a rep and also proper product-positioning • Your alignment strategy increases your share of type twos • Fixing type three gaps requires changing partners

17. This Is About Focus They are your customers and you let your customers guide you with respect to which distributor they want to service them • The good ones are hard to get • It often takes as much work to crack a medium customer as a large customer so invest your time wisely • Visit all the large end users and/or contractors to find out their #1 and #2 distributor reps and assess their • Total purchase potential • Purchasing concentration • You should always have a couple of biggies on your list- they might take years to crack

18. Strategic Action Alternatives • Invest some time working on your territory, rather than just in your territory • You need to have a plan that describes which partners that you need to add, which you need to drop, and plans to develop the potentials into winners • Shave some time from the idiots to reinvest for a better return, especially those customers close to your office • Start tracking end user-rep alignments • Talk to your manager about the principle of calculated neglect • Figure out who are the largest end users of your competitor’s products

19. Investment Decision Making • You invest your time to get a financial return • If you react to the most recent email or phone call you are not investing, you are simply spending your time • The key question is what are the investment criteria that you use for your time • You’re trying to keep everyone happy so they think well of you • You’re totally focused on making your quota for this month • You choose between investments that have the longest tails Radical differences in time investments will result from this choice • It all comes back to your definition of your mission • It really comes back to what your boss defines for you- so be sure to not assume and be perfectly clear He who has the gold makes the rules!

20. Six Key Questions For You • How aligned are your end users with their preferred distributor sales rep? • Who are the 10 largest users of your competitors products in your territory and how much time do you spend with them on a monthly basis? • If you asked each distributor rep for their 5 highest growth opportunities for your line, what would you get? • How do you split your time between working in your territory and working on your territory? • Have you captured your full share of spend with the thought leader end users in your market? • Have you figured out how to minimize silly ride alongs with distributor sales reps calling on low concentration customers who also have a bias to sell their private label brands?