The Good, Bad and Ugly of Distribution Sales Transformation - Modern Distribution Management

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The Good, Bad and Ugly of Distribution Sales Transformation

More distributors are taking a rapid and growing interest in sales transformation and rethinking how they enable their sales teams to perform.
six workers gathered around a desk with papers, computers, phones and charts

While many are looking at sales transformation for the first time, several distributors are already on their third round of major innovative changes. They have been at it for years. On the flip side, there are even more examples where distributor change efforts have been ineffective or even damaging.

The pandemic has dramatically accelerated change to the distribution industry’s traditional selling approaches. To that point, on a recent podcast, consultant Bruce Merrifield posed the question, “What are you going to do if 50% of your customers say they never want to see a sales rep again?”

Those distributors that already invested in digital and web technology fared much better than those caught flat-footed. That said, I have been personally impressed with the creativity of our industry’s field salespeople. The sheer volume of new ideas, new solutions and new approaches to help customers has been inspiring.

In addition to the pandemic, the pressures on the traditional sales role have been in place for several years:

  • Customers changing how they source and purchase products
  • The rising expectation from B2B customers of a B2C Amazon-style customer experience
  • The major generational change that is underway
  • Suppliers adding additional channels to market outside of their traditional distributors

The list could be much longer. And on top of these forces, online price transparency has dramatically increased margin pressures. The net result is that distributors must reduce their selling, general and administrative (SG&A) expenses to maintain profit.

We lost 1 million of our B2B field sales representatives (out of 4.4 million) between 2015 and late into 2019, according to Forrester. They have been replaced with technology and inside sales reps. These are early steps in the transformation process. Traditional-route sales reps have felt the impact the most.

Doing the Same Things Better Won’t Solve the Problem

More distributors are taking a rapid and growing interest in sales transformation and rethinking how they enable their sales teams to perform.

They recognize that things will never go back to the way they were in January. They’re asking: “What do I need to change now for the new normal?”

While many are looking at sales transformation for the first time, several distributors are already on their third round of major innovative changes. They have been at it for years. On the flip side, there are even more examples where distributor change efforts have been ineffective or even damaging. One of the more common examples is an executive decides that putting in a CRM system is the answer and they cram it down the throats of their sales teams. A solid base of data indicates a failure rate of close to 90% for CRM. This is complex, expensive and risky, requiring extensive collaboration and socialization.

Perhaps the best place to start is with a definition of sales transformation. Here is a starting point: It is a change management process for a distributor that transitions their sales force from an ‘old school’ state to a more holistic and integrated future state.

The old school state has self-directed sales representatives that serve customers in geographies where they typically earn a commission on the gross margin of their customer’s orders. In the mind of many customers they are primarily buying from the sales rep, not the company. The sales rep is the customer’s value proposition. They are typically responsible for all market-serving and market-making activities for the customers in their geography.

The future state replaces most of the field sales generalists with specialized selling roles that support the separation of market-serving activities (managing transactions with existing customers) from market-making activities (acquiring new customers and expanding share of wallet with existing customers). This creates an interdependent team of management-directed people to serve specialized needs from customers.

Experienced distribution executives view this change effort as equal to an ERP conversion.

This is the Good

The payoff includes higher growth rates, lower SG&A expenses and higher levels of customer service. But it can be challenging to initially determine ROI based on the reliability of forecasting processes that often don’t exist at the beginning.

This is the Bad

Since it is challenging to determine a clear end state for a sales transformation, many executives just start looking for a good idea or something to buy. Even worse, they turn the process over to an outside firm to ‘fix the problem’ for them. (Outside advisers can accelerate the process, but the executive must own the design.)

When principles are ignored or misunderstood bad things happen.

While every company’s journey is different, all will be successful if these seven principles are followed. They are listed in order of the most commonly overlooked.

  1. Build or hire your own subject matter expert to enable your sales team. The knowledge base must exist inside the firm and not rest solely in outside providers. This includes ongoing research on the state of the art in sales transformation. The MDM Sales GPS program is an annual review of what is currently happening with sales transformation and sales enablement in the industrial distribution field.
  2. Engage internal stakeholders – including the sales force – in the change from the beginning.
  3. Taking an accurate assessment of the starting point is critical.
  4. Define what the various selling roles are supposed to do, so they are linked to strategy and KPIs along with the model economics.
  5. Create a monthly performance coaching cycle.
  6. Manage salespeople not incentives. But these incentives should reward salespeople for helping the manager achieve his or her objectives, so they must be aligned.
  7. Make customer status information readily available to each of the stakeholders, so information is documented and shared instead of remaining only in the minds of each rep.

Your transition to your future state may be fast or slow. If these principles are followed, the change will work. It is a solid checklist for progress reviews. If they aren’t followed, then things get ugly.

This is the Ugly

Sabotage is unseen until it is too late. Every sales rep and their companies have an unwritten agreement defining ‘what they give and what they get’ in return. If the basic principles are not followed, you face two major risks.

The clear risk is when the sales reps believe that the transaction of what they give for what they get has changed, without any input from them. Most sales reps place a high value on their decision-making autonomy. This is often the unseen gorilla in the room. Losing this is often the primary reason that a strong rep will leave and take some customers with them. This risk can be assessed early on by speaking with major customers and asking them, without leading or prompting, “Why do you buy from us?” If the first thing they say is the sales rep, you face risk. Obviously, the sales rep should not be present during this conversation as it leads the answer.

Also see:New Paradigms for Talent Development in Distribution.”

The second risk is largely unseen but just as costly. A sales force can only put so many hours and energy into the market. When the change creates confusion or frustration it consumes a significant portion of this energy. This reduces the amount of energy available to put into the market. If the purpose was to make the sales process more effective, then the change effort failed. A symptom is when the distributor can’t get the sales team to input the data needed for a CRM system. This productivity loss is like an iceberg with the largest losses unseen and often misinterpreted as a tough competitive market.

How can you avoid these two risks? Follow the principles. Remember that sales reps want to win, and this driving force is hard-wired into the majority. Just like most policemen are good and they have some bad ones, the same is true for your sales reps. Don’t treat them like they are the problem; treat them like they are part of the solution, using the second principle above. Build a real case for why change is necessary and let them have real input into designing the new state. If they can see a path to winning more business, they will knock down walls for you. Don’t forget the creativity they have already shown in this pandemic.

If sales transformation was easy, everyone would do it. Just decide if you are playing the game to win, or simply playing it not to lose.

After 20 years in distribution management, Mike Marks has focused his consulting practice for even longer on B2B channel-driven markets, with extensive relationships in construction, industrial, OEM and health care. Marks has led projects to improve market access and create growth that benefit manufacturers, dealers and distributors.

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