If your sales channel isn't mandated by law, the market will rule
Guide to episode
- Most beer distribution is controlled by law. Distributors are required.
- B2B industrial distribution isn't protected by law - although many industries still observe rep relationships with protected geography.
- Sales channel models were created when distribution of physical products, and sales and marketing information, were constrained.
- Today the constraints are gone, and channel needs to adapt.
- Buyers will write the "law" for your industry, not your preference based on the model around which you've built channel!
Hi. I'm Ed Marsh. Welcome to this episode of Signals From the OP. In Signals I talk about issues that strike me as important and disruptive, often impacting the revenue growth strategy of industrial manufacturing companies. Today I'm going to talk about the sales channel, industrial sales channel, and I'm going to use a term that I just recently learned and I love. I'm going to talk about mesofacts, mesofacts, I'm not even sure what's the proper way to pronounce it.
What mesofacts basically means is facts that change so slowly we may not realize they're changing, but they do. Speed of light is a fact that isn't going to change. The temperature today is a fact that's going to change quite a bit. This evening will be different and tomorrow will be different. A mesofact is a fact that will change, but it will change so slowly that you might not realize it. You might think it's fixed.
I think that the manufacturer rep distribution model that's been used in many cases in industrial sales over the last 50 years is a mesofact. We look at it, we think it's just the way it's going to be, but actually it's changing.
I was reminded recently of the example of beer. Beer distribution is an industrial distribution, but it's kind of an interesting parallel. It's a really complicated system built on a patchwork of all different rules and regulations that control how beer is sold and distributed. Basically the government has stipulated with a number of rules that were put in place actually with the repeal of Prohibition that beer must be sold through a middleman. There's a number of reasons for it and it varies from state to state.
Over the course of the last five or 10 years the surge of microbreweries and craft breweries has led to a number of challenges to that for a variety of different reasons. Basically the old system interferes with the ability of smaller companies to kind of get up and running, so there's a lot of discussion and valid points to be made on both sides. The point is that in the beer world the government sets laws that dictate how it will be sold, including through a middleman.
Now let me ask how many of you have laws in your industry that dictate your sales channel arrangement? Certainly there are laws about list pricing and whether you can control how companies sell against list. Certainly there's some of those kinds of things, but dictating that you have to sell through a middleman? I'd argue probably none of you have those unless you're selling beer. Yet here's what I see. Companies continually proceed as though that's just fact. As sure as the sun's going to come up tomorrow morning, the middleman is going to be involved in the sale.
So I say here's the thing. If they're adding value they may well be, but if they're not adding value, if they think they're going to participate just because of some contract that was written a number of years ago under some sort of an organization that made sense 30 years ago I think they're mistaken. I mean they may in the short term, but not in the long term, because customers are the ones that are determining how that transaction is going to happen.
I was involved recently with a trade organization representing reps that was holding an annual event and one of the interesting things about that was that they stipulated certain words that couldn't be used. Middleman couldn't be used from the stage during their event. They also tightly constricted the perspectives that they were going to provide so they didn't agitate their rep members.
These are reps who have a geographic territory for which they believe they're entitled to participate in any transaction that happens in that territory regardless of whether they had anything to do with it. Whether they're creating value, helped put the manufacturer and the buyer together, whether they brought the deal to the distributor, it doesn't matter. They think that they're entitled to it just for getting out of bed in the morning.
Customers don't. Customers are looking for insights. Customers are looking for value. Customers are looking for help achieving their outcomes. If they wanted spreadsheets and stuff, they can get that online. They don't need sales channel to provide that.
Bottom line, I would say that the sales channel that exists for the sake of sellers is going to get crushed. Now if you've got government rules in your industry that dictates there's a middleman, I'd say it's still going to get crushed eventually. It's just going to take longer. It's going to be a longer process.
But sales channel that's developed in order to provide value for all the participants, particularly folks that are the buyer, that's going to be a great dynamic sales channel. I would say This Bud's For You. Enjoy it, relax, reward yourself after a hard day, but the Bud business model is not, at least if you're in the industrial sales world.
This is the way I kind of take issues apart sometimes and look at them in slightly contrarian or irreverent perspectives. I spend a lot of time working with industrial manufacturers talking about revenue growth and sales channel is one of those issues that's really at the crux of a lot of changes happening.
If you enjoyed this and want to subscribe to my periodic videos, I welcome you to do so. You can do that at signalsfromtheop.com. I'm Ed Marsh. Thanks very much.