Changing Channels: Sales And Distribution For The Future

“I don’t get it,” the marketing executive said. “Our prices are competitive, our products are better than ever, and our shipping and logistics are right there with the best. Why are our sales continuing to slide?”

The sales manager thought for a moment. “Maybe it’s our sales approach. We haven’t really changed the way our reps go to market,” she replied.

“But we have one of the strongest sales teams in the industry. Our people average more than 10 years of field experience, they’re committed, knowledgeable, they make their calls, have solid relationships with customers; what’s wrong with the approach?”

The sales manager took a deep breath. “I’m not sure, but for the past few months, it seems like the sales model in the industry is changing. When the reps call on their key accounts, often there’s a new buyer in the job, so relationships aren’t what they used to be. The new buyers are often younger, and don’t have the old loyalties to vendors that their predecessors had. Plus, the new buyers are more tech savvy; by the time our reps come in, the buyer’s already looked us up on the web, knows our prices, knows our competitors, knows all of our product specs. Most of the time the buyers are calling us, trying to confirm information they already have. It’s just different. I don’t know. Maybe we need to rethink our sales model.”

Conversations like this one are becoming all too frequent in companies today. More and more firms are seeing increased pressure from buyers, from competitors, from new models of distribution and, as old models are coming down, new ones are still being developed. In coming years, the changes in traditional sales and marketing functions and activities will continue to grow and place greater demands on systems that, quite frankly, are probably out of phase with the future. There are some key forces driving these changes:

#1  Demographics — Between 2009 and 2019, some 70 million people will reach retirement age and can exit the workforce. These are the Baby Boomers, the generation born between 1946 and 1961, and about 10,000 of them turn 65 every day. Behind them are those from Generation X, Y, and the Millennials. They came of age in different times, they think and act differently from their predecessors. Chances are that if you’ve got a sales rep who’s 50 years of age or more, your rep will be dealing with a different buyer in the near future.

#2  Technology — This continues to be huge, but not for the reasons most people think. The key issue with technology is it puts more information in the hands of the buyer with less effort. In the traditional sales approach, buyers relied on sales reps for product information, service guidelines, pricing information, and the like. In the future, the information will be readily available to any buyer with a smartphone or tablet, and the information will be available in real time. The sales rep as information pipeline will be a thing of the past.

#3  The Economy — Ever since the recession of the U.S. in 2008-2009, the economy has done what all economies eventually do – adjusted to a new set of market conditions. Companies now compete with competitors from offshore or globally. Prices are under constant pressure and new sources of supply come online from developing economies. Margins continue to erode due to increased competition and upward pressure on costs from an aging workforce (healthcare), regulatory burdens and basic costs of commodities and materials.

All of these together lead to a major shift in demand models. Buyers now expect to have information available 24/7, including product data, service capability, pricing, logistics and delivery information. This puts the balance of power in the sales model squarely in the hands of the buyers. The leverage is not all on the buyers’ side of the sales model. As a result, the sales rep who once was able to influence buyer behavior through sharing of information, developing relationships based on historical performance and personal knowledge is now at risk of becoming a commodity in the channel, “just another rep I’ve got to deal with,” as one buyer put it.

Two Shifts: Generating Demand and Influencing Demand

What can firms do in the face of such changes? What does the new sales model look like? The first change companies need to consider is shifting from the traditional “push” model, in which the sales function seeks to identify needs and then create a “fit” between the customer and the products or services provided, and a “pull” model in which the role of the sales representative is to manage the demand process to “pull” products through the channel.

That is the biggest change created by the shift in the “center of transaction gravity” from the vendor to the buyer:  from meeting needs to generating demand. In the transactional model, the emphasis is on the transaction:  bringing buyers and sellers together, identifying customer needs, and demonstrating how the goods or services provided by the seller meet those needs. Both parties are presumed to have an interest in a successful outcome, and therefore the emphasis is on managing the process, the transaction.

In the future, the shift to a buyer-centric, demand-driven model destroys the transactional model. The buyer now has leverage, and buyers attempt to create a situation wherein sellers are reduced to commodity providers of goods and services; the basis for the sale becomes price, and buyers play one vendor off against another in order to get the best possible terms and conditions. Think of “reverse auctions” as the preeminent form of such buying behavior, wherein buyers specify the products they desire to purchase and ask vendors to bid against one another for the lowest price offering for the item. It is the “Walmartization” of the purchase process, and for many companies who cannot lower costs enough to be able to compete, the new buyer-centric model means that firms will go out of business, unable to compete.

But – there are firms that have seen the future and realize that this isn’t viable. These firms have recognized a second shift in the model – the ability to leapfrog over the transaction and, accepting that the buyer is not the dominant party, have created a new model based on demand management. That is, firms that will succeed in the future will not attempt to meet buyer needs; instead, these firms will actively seek to manage the buyer’s demand process by not only anticipating buyer needs but by actively creating new demands of which the buyer was not even aware.

These “sales” organizations will instead become “customer demand managers,” and will engage with customers for the sole purpose of learning the customer’s business model. In the process of mastering the customer viewpoint, these firms will then use creativity and innovation to create new products and services that solve problems the customer didn’t even know existed. These organizations will become “influencers,’ trusted strategic partners of the buying organization, and will drive customer demand for products and services by affecting the buyers’ thought process.

Such firms will go right past traditional models that emphasize data and the need to convince customers of the logic of the decision. Instead, these firms will seek to understand customers at an emotional level and will drive demand through inspiring customers with new opportunities and potential, stimulating customers with information about future needs, encouraging customers and providing guidance. These influencers do not accept customer needs as givens, but instead look to create needs. Through intimacy – knowledge, understanding and familiarity – these influencers will impel customers to behave in ways that not only will benefit the customer but will challenge the influencer as well.

The influencers may even become channel managers, soliciting vendors to provide the commodity products and services and lower prices to insure the customers’ problems are solved in the most efficient manner. But by moving from mere efficiency (lowest cost) to effectiveness (best outcome), influencers/customer demand managers will secure better profit margins, as customers will pay for the solutions and not for the products and services.

Fork In the Road

Firms today ace two clear paths to future success:  becoming the most efficient (read “low cost”) provider of products and services, which means competing on scale economies and cost reduction; or becoming the most effective (“demand managers”), competing on information, knowledge and customer intimacy. More and more companies will have to make a decision in coming years about which route to success to choose. What will your choice be?

Gases and Welding Distributors Association
Aaron Buchko Aaron A. Buchko, Ph.D. is professor of management in the Foster College of Business at Bradley University in Peoria, Illinois. His research and writing focuses on the roles and activities of senior managers, the practice of general management, and executive development. A past president of the Midwest Academy of Management, he also serves as an advisor and consultant to executives in many organizations.