Trend Watch
Looking ahead: What reps expect in 2004
What are the issues and challenges that reps will be facing in 2004? And what can reps do to prepare themselves to face those challenges? These are the basic questions we put to reps and to others familiar with the rep business in Sales Rep’s Advisor’s annual “Looking Ahead” survey.
In response, reps came up with a slate of challenges that they will be facing — economic conditions, industry consolidation, greater demands on their time, more pressure on commissions, and anxiety over commission splits, cost-containment, and technology. Considering that reps don’t have much control over some of these issues, one might think that they would be ready to settle in and go along for the ride. But that’s not the case.
“Good reps find ways to grow even in bad times,” as Gregg Marshall, director of the United Sales Association, a gift industry rep association, puts it. And a number of the reps responding to SRA’s survey were willing to offer their strategies for dealing with the challenges they expect to face in the year ahead.
It starts with the economy
Most reps voice concern over the economy, but feel that 2004 will show some improvement over 2003. There are lingering concerns over the war in the Middle East and other factors that might affect the economy, but most reps are optimistic.
Rick Moore of Thomas & Moore Inc., a gift industry rep firm based in Dallas, details the lingering effects of war and terrorism on a fragile economy. “Whether 2004 will be better or worse for our firm than 2003 depends on the world peace situation. Terrorism scares people, and there is still too much unrest in the Middle East. How secure we feel as a nation will determine how we do economically.” Moore expects “little or no” improvement until that sense of security returns, but he will still try to “sell smarter, be as economical as possible, and find lines that can sell well at retail despite the economy.”
Edward A. Grzesik, CEO of ISC, a foodservice broker in Villa Park, IL, voices some of the same concerns and outlines his strategy for dealing with the situation. “2004 will be better than 2003 primarily because Sept. 11 and the Iraq war are largely behind us and buying habits are becoming more normal,” he says. “In addition, we are looking for different ways to become profitable by thinking outside the box and looking for customers in other avenues. Though we are a foodservice company, we are thinking about going into the selling of nonfood products and expanding service to the industrial trade and the deli retail trade. In essence, we’re looking at expanding our customer base into different categories of the food business.”
Bonnie Glushon, president of Sales Producers Inc., a gift industry rep in Los Angeles, expects 2004 to be “slightly better,” and will be contributing to the overall effort by “looking for better lines, better technology that can provide more practical sales information, and better and faster hardware for reps.” She also expects to get a boost from a new, larger database for the agency’s e-marketing efforts.
The effects of consolidation
Consolidation among U.S. manufacturers is having a double-edged effect on reps serving industrial markets — both the number of principals and the number of customers available to them are shrinking. Having fewer customers to call on means there will be greater competition for those customers. And where reps are calling on retail customers, there is also the threat that a customer will “pull a Wal-Mart,” as Gregg Marshall puts it, and “go direct to the manufacturer, bypassing the normal rep sales process.” Or conversely, that a principal will declare a large retailer a “house account.”
On the other hand, consolidation among principals also means merging and consolidating sales organizations, stripping some reps of lines and putting others out of work. In addition, with fewer principals commanding a greater and greater number of lines, reps working under strict noncompete clauses will have a more difficult time adding new lines.
“Consolidation is definitely the enemy of the independent rep, says Josh Gordon, a publishing industry rep, the author of Selling 2.0, and a board member for the National Association of Publishers’ Representatives (NAPR). “When customers get bigger, it’s almost inevitable that they will become a house account after a certain point — because the relationship between the customer and the manufacturer becomes more intimate and it becomes more and more difficult for the outside representative to stay involved at the same level. Fewer customers means that companies will want to hire their own people to handle them.”
Contributing to the difficulties for reps in some industries is that many principals have moved their manufacturing operations offshore, making it harder for reps to track commissions.
John Rowell, CEO of CompTech Sales Inc. in Arlington, TX, a rep firm serving the computer and electronics industries, says that “offshore production and being paid for design work done in his territory” are the biggest challenges he faces now and in 2004.
Eric W. Zepp, president of BP Sales, a computer and electronics components rep headquartered in Richardson, TX, cites his firm’s major issue as “the wholesale transfer of production to the Far East coupled with our principals’ incompetent or willfully inadequate split-tracking capabilities.”
Pressure on commissions
Consolidation and the economy have had their effect on manufacturers as well, and many of them have responded by looking for ways to cut costs — and one of the most prominent cost-cutting targets over the last few years has been rep commissions.
“There’s no question that price pressure is everywhere these days,” says Gordon. “No one seems able to raise prices. But if you can’t raise your prices and you still have to pay your employees raises and your rent keeps going up, something’s got to give — you’ve got to reduce your expenses. And it’s not that reps are in a unique position. We’re just standing in line to take our hit.”
What is unique is the fact that in the past, the manufacturer’s mentality was, “Leave the rep’s commission alone, we have to keep them motivated.” In a period of consolidation, however, fewer reps are needed and the manufacturer says, “If one guy won’t take it, maybe the next guy will.” The way to deal with that, as Gordon sees it, is to “build strong relationships with the customer base so that principals can’t view one rep as interchangeable with another equally talented representative. Though the talent may be equal and the commission the new rep is willing to accept may be a bit less, a new rep can’t immediately replace the five or 10 years of relationship building that has gone on.”
Pressure on commissions is a constant — both in the form of principals’ asking for lower commission rates and in principals’ asking reps to take on more responsibilities for the same commission. Edward A. Grzesik of ISC, for instance, accepts the inevitable: “Yes, we expect to face more commission declines, and the only way we can respond to that is to take on additional lines and/or try to convince the manufacturer through associations, the media, publications, etc., that reducing commission rates does not serve any effective purpose — it just forces reps to take on more lines to bring in more revenue and thus spend less time on the lines they presently represent. It is not a win-win situation.”
Some rep associations are taking on that challenge and beginning those discussions in their in-dustries. In the gift industry, for example, reps are recognizing that “reps are being asked to do more, and the compensation is not following that same trend. This is an industry where reps are asked to take on a significant portion of the marketing costs in terms of the showrooms that they’re supporting. So basically, reps are just stealing time from what they were hired to do in the first place — which is to create sales,” says Gregg Marshall. “The whole question of compensation is a discussion that the industry needs to start having. In fact, I think you’re going to see a dramatic increase in the whole concept of fee-for-service because it better reflects what’s going on in the industry.”
Technology and the rep
Technology may offer reps the tools they need to scrape their way through another year if the economy is slow in recovering.
Some are still skeptics. For instance, Robert F. Casale, president of Aftermarket Sales Inc., which reps auto aftermarket products in Glen Cove, NY, says, “Technology is helpful, but in many cases it can still be a negative — it adds costs in terms of time and lack of good communications.”
Other reps are slowly but surely taking advantage of technological tools. Many still do not have a website, though they use other technologies. Carole Rosenbaum of Market Place Gifts Inc., for instance, reports that her firm has no website, but “We communicate by email, which is very important — it’s important for our daily rep reports and activities.”
Some have embraced technology more completely. Ron Groves of Groves & Siverts, an auto aftermarket rep, for instance, says, “We analyze and buy technology products that make sense in terms of improving productivity. We have a website, and we’ve made an investment in Pocket PCs — and we love them. We also have proprietary sales commission tracking software in development.”
Steve Kuhlman of the MVK Group in the office product industry reports that his agency is also investing in technology for the sake of his firm’s future. “MVK has had its own active website for five years now. Our reps have PCs with them at all times, and they have digital cameras to support communications with manufacturers and customers. Our schedules and reports are Web-driven, and all reports are delivered electronically.”
Narrow-eyed optimism for the new year
How reps will fare in 2004 is still a matter for cautious speculation.
There are naysayers. John Rowell of CompuTech Sales Inc., for instance, says 2004 will not be any better than 2003. “The struggle will continue, and as times get better, we will lose people to better-paying positions in other businesses. The electronics rep business will never be the same.”
Josh Gordon sees more of the same challenges: “Consolidation, struggling for new business, dealing with a contracting customer base, dealing with the internal requirements of principals for more paperwork to justify everyone’s existence and reassure people that, despite the fact that business is flat or going down, the best efforts are being made to change that situation — that’s not going to change. But there does seem to be a glimmer of hope that the economy will improve.”
Most reps see that glimmer as a reason to be optimistic, though few are willing to commit to high hopes. And virtually all seem willing to commit significant effort to achieving even slight gains.
Steve Kuhlman, for instance, says, “We expect 2004 to be better. General business conditions are improving, and we will continue to pursue new line opportunities. This and better time management we hope will produce higher revenue with lower costs. Our results should be an improved average commission and net profits.”
And Steve Johnson of Johnson Waters Market-ing, a gift industry rep in Overland, KS, says that 2004 will be better through his firm’s efforts to “improve the product mix we offer customers, make better use of technology, and continue our ongoing development of relationships with customers.”
At the very least, as one anonymous respondent to Sales Rep’s Advisor’s “Looking Ahead” survey suggests, “Things will improve in 2004 simply because they couldn’t possibly get any worse than they were in 2003.”
Contacts: Gregg Marshall, United Sales Agents, (303) 475-6634; Rick Moore, Thomas & Moore Inc., rick@thomasandmoore.com; Edward A. Grzesik, ISC, (630) 833-3000; Bonnie Glushon, Sales Producers Inc., bonnieg@salesproducersinc.com; Josh Gordon, Gordon Communication Strategies, jgordon5@bellatlantic.net; John Rowell, CompTech Sales Inc., jrowell@ctsales.com; Eric W. Zepp, BP Sales, ezepp@bpsales.com; Robert F. Casale, Aftermarket Sales Inc., autoptsrep@aol.com; Carole Rosenbaum, Market Place Gifts Inc., carolemp@sbcglobal.net; Ron Groves, Groves & Siverts, ron@grovesandsiverts.com; Steve Kuhlman, MVK Group, skuhlman@mvkgroup.com; Steve Johnson, Johnson Waters Marketing, (732) 420-6915. Gary Udell, Gerry Udell Inc., (973) 338-3100; John Park, Park Avenue Agents, (206) 779-4231.
How will you respond to pressure to cut commission rates?
One of the biggest issues reps expect to face in 2004 is continued pressure to accept reduced commission rates. Here’s how some of the reps who responded to SRA’s “Looking Ahead” survey say they would respond to such pressure.
“This threat always exists. We will respond by providing more professional services, sales personnel, and internal support staff. Also, we’ll focus more selling time on value-added lines that require professional services.” — Steve Kuhlman, MVK Group
“We expect to charge for identifiable services.” — John Park, Park Avenue Agents
“My response will be: a) cut services to compensate, or b) seek other lines.” — Eric W. Zepp, BP Sales
“We are being butchered. How do you respond? You handle more lines if you can get them. If you resign, the next rep will take it.” — Robert F. Casale, Aftermarket Sales Inc.
“I will fight it. Reps cannot be on the road without commissions earned from their work on the road staying consistent.” — Rick Moore, Thomas & Moore Inc.
“We will fight aggressively — and maybe give up a line — but eventually we’ll give in.” — David Weiss, Marc Alan Associates Inc.
“We will offer more services and charge for them. We’ll also emphasize the value of well-paid reps and work more closely with manufacturers who are not looking to reduce commissions.” — Carol Webb, Phase Three Sales
“We’ll negotiate and keep some lines and drop others.” — Paul Nielsen, Brainard-Nielsen Marketing
“We’ll continue to show our partners the value of a good sales force. We’ll also try to get more involved with them on programs with customers to lessen the pressure.” — Stuart Teller, OneCoast Network
Downturn spawns micromanagement
A side effect of the economic environment seems to be a complaint among reps that principals are trying too hard to micromanage their businesses. Gary Udell of Gerry Udell Inc., a beauty product rep in Bloomfield, NJ, for instance, says, “We are being inundated with requests for reports and details—much of which is unnecessary.” John Park of Park Avenue Agents, a gift industry rep in Seattle, WA, voices a similar complaint about being “micromanaged by sales managers who don’t know how to support our efforts.”
To Josh Gordon, a publisher’s rep, that’s a “cover your butt” mentality on the part of manufacturers and their sales managers in response to the poor economic climate. “Managing in a down economy is extremely difficult. Everything is in contraction mode, including jobs—that means everyone has to look their best, and that translates into more reports. It’s counterproductive because at a time when you really need to be spending far more time selling, some reps are being asked to spend far more time catering to internal requirements that do not generate extra sales.”
Gregg Marshall, of the United Sales Association, blames part of the trend toward micromanagement on technology. “In the past, you could hide an underperforming territory because the sales manager saw only the aggregate numbers, and as long as you could keep your overall numbers trending in the way that they wanted, sales managers didn’t ask too many detailed questions,” he says. “However, today’s technology offers access to detailed information that was never available before. They can slice and dice and look at data in ways that they couldn’t just five years ago. And that trend will only increase, so reps need to be armed with data as good as the manufacturer’s in those conversations.”
This article was reprinted from the January issue of Sales Rep’s Advisor — the industry newsletter providing tools, information, advice and resources to increase agency profitability.
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