Protecting rep commissions as online sales grow
By the AIM/R board of directors
In the fast (and getting faster)-paced world of today’s consumer, every minute matters, which is why online shopping has become commonplace.
As customers are looking to add productive minutes to their days in order to maximize their revenue streams, doing business through online vehicles has become a common venue being utilized for 24/7 service.
This is our reality. This pattern shift has showed once again that change is the true constant in life as it is in business, and our customer’s perception now expects the same online, on-demand shopping experience in their professional interactions.
While there’s much more to consider when buying a faucet or tub vs. a standard retail staple, consumers are becoming increasingly comfortable making these purchases online. Online business-to-business (B2B) transactions from contractors, builders, designers and other trade professionals also are on the rise. The U.S. B2B e-commerce market alone, according to one report, will account for more than $1 trillion by 2021.
There is an utmost importance for all of our supply chain partners — reps, distributors and manufacturers — to recognize this “trend” as the new normal. Even more important is the effort needed from channel partners to address and act on the new opportunities to gain profitability in an online B2B world.
The new economic reality for channel partners requires an open dialogue and a plan of action to ensure our market segment continues to gain market share. Exponential growth of consumer and trade online sales will not only affect the overall sales numbers of distributors and their showrooms, but in turn seriously impact the commissions of independent manufacturers reps. Currently, it’s very difficult for reps to receive commissions on products purchased through online stores that aren’t affiliated with local wholesaling operations.
Independent reps are tasked with creating demand in their territories for their manufacturers’ products, and obviously incur expenses building local and regional relationships. These reps are the “face” of their manufacturers in their territories. They dedicate much of their time to building relationships with distributors, designers, engineers, architects, contractors and end users to educate on new products, generate specifications and gain inventory commitments.
When these products are purchased through the traditional plumbing distribution channel, reps rightfully are compensated for their efforts through their agreed-upon commission plan. However, when purchases are made online through e-commerce stores not affiliated with distributors, rep commissions take a significant hit.
AIM/R: building bridges by taking action
Some distributors and their buying groups are taking a proactive approach to the online paradigm shift and have started exploring competitive avenues in the digital space. Because of the long-term relationships we have built together with our distribution partners, AIM/R is committed to ensuring our supply-chain partners remain healthy, relevant and competitive.
AIM/R’s desire is to build a collaborative effort addressing this important issue in beneficial ways for all levels of the supply chain to secure a strong future for distribution. Knowledge and communication are key throughout the process. Some of the steps that AIM/R suggests are:
AIM/R would like to facilitate an open dialogue by forming a taskforce with industry partners to address these changing market conditions, identify potential solutions and implement agreed-upon solutions as today’s trend quickly becomes tomorrow’s common practice. As we see the prevalence of digital sales growing within our industry, AIM/R believes together we can make major inroads working our way toward a scalable business model for the future.
AIM/R reps want to work with our manufacturers on efforts to use stronger language when drafting agreements with various online sales companies. There is a fairly simple adjustment reps can encourage their manufacturers to make when drawing up online sales contracts — requiring e-tailers to supply them with monthly documentation of all their “ship-to” addresses. This change would help ensure reps receive appropriate — and deserved — credit for these sales. Some manufacturers have already started successfully implementing this practice.
With the continued increase forecasted in online B2B sales, there is an importance to ensuring customers are buying products through sources that benefit all channel partners — not just for financial reasons, but also to secure brand integrity for manufacturers. Product sales tied to manufacturers reps through contractual provision gives buyers comfort in knowing they have a local contact in which to turn should there be any product issues or after-sales support needs. This is a huge benefit of which distribution partners can take advantage since the mega e-tailers aren’t exactly known for their technical expertise or high-quality customer service. Automatically connecting buyers with their local contacts saves them considerable time and aggravation in tracking down a resource who can provide timely answers.
Distributors and reps must work together to develop the highest possible service levels, lead times and product quality — and communicate that to consumers and trade professionals. When explained, those benefits are often enough to combat the lower pricing offered by mass e-tailers.
For many years, wholesale distribution seemed relatively “protected” from evolving buying habits in hopes the trade customers wouldn’t be easily swayed into the less-personal, less-hands-on ways of online ordering. However, it’s becoming increasingly clear that distributors — and especially their showrooms — should implement and promote customer-friendly interfaces and online product catalogs. Beyond protecting their own sales, this also is a critical way to ensure reps are being fairly compensated for their efforts.
Getting involved in the dialogue
While there is much to be done in our rapidly evolving distribution channel, one thing that hasn’t changed is the critical leg of that three-legged stool — manufacturers, reps and distributors — that reps provide. Independent reps continue to be the professional eyes and ears in the field for their manufacturers, and they serve as the most efficient, effective and consistent sales resource their manufacturers can have.
As online B2B sales skyrocket past $1 trillion, channel partners must make it a priority to come together in addressing and creating new revenue models in the digital B2B marketplace. AIM/R ‘s goal is to encourage manufacturers and distributors to get involved and come together with us to candidly discuss the next generation of our supply chain and how we can quickly implement strategic change. We are offering to organize and host panels, roundtables, committees or any type of industry-wide communication opportunities to help strengthen our channel as a whole.