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NEMRA's Bergson Speaks Out on Rep Concerns

Feb. 18, 2003
Hank speaks out

NEMRA's Bergson Hits Rep Issues

Manufacturers with rep-based sales forces must start moving toward activity-based compensation programs to keep pace with the expanding package of services independent manufacturers' reps now perform, according to Hank Bergson, president, National Electrical Manufacturers' Representatives Association (NEMRA), Tarrytown, N.Y.

In Electrical Wholesaling's cover story this month, Bergson said the most progressive rep compensation programs utilize an activity-based compensation philosophy.

"There are reps in the food industry who have gone to contracts for specific services. When they add new services, manufacturers pay differently for them," he said. "We have seen a smattering of that in our industry. Some of it is still a percentage, and some of the percentage goes up as you take on more services. We see a lot more activity relative to split commissions for specification credit. A lot more manufacturers understand three major service tasks take place within any order process - where the order was placed, where the specification was generated and where the material finally ends up after the sales service."

Now in his 17th year as NEMRA president, Bergson said this is a radical concept for some manufacturers and distributors to understand because of a debate over who "owns" the customer. "This becomes a bit of heresy to the traditional electrical distribution market. But the manufacturers understand that consumers are going to choose how they want to buy the product," he said. "Therefore, they want their rep to know the consumer as well as or better than any distributor salesperson, Home Depot salesperson or Grainger salesperson, because the person closest to the customer is going to win."

To provide these additional services, reps have taken on many marketing responsibilities that were formerly performed by manufacturers. In some cases, they have hired full-time marketing personnel to monitor and facilitate the sales programs that manufacturers and the marketing/buying groups offer.

Bergson says this shift of marketing responsibilities started during the recession of the early 1990s, when many manufacturers reduced their inside sales and order-processing personnel.

"Those jobs have never come back, he said. "We are now in another recessionary period. Other options are moving into the rep community where the rep can provide those services manufacturers have chosen to eliminate on a cost-effective basis, and in many cases, a more effective basis. It's not in every phase of marketing. Some of it's more market management, such as literature distribution and lead processing."

Another marketing function that's changing for independent manufacturers' reps is bringing new products to market. Bergson said more manufacturers now realize selling a new product takes more of a rep's selling time, and they are providing a better risk/reward scenario to attract the attention of the established reps.

He said established reps will take on one or two start-up companies with innovative new products because they can fit them into their product packages and look toward additional income in the future. But some small manufacturers are looking at longer-term contracts during their start-up periods, and hiring the rep to perform services for them, he said.

"It makes it very difficult for some start-up companies. Some start-ups have taken to partnering with existing product lines that already have a rep sales force. Some of them have had to target specific territories and not been able to roll out the product nationwide. Some of this has been very positive for reps, because they know there is a certain amount of reward taking place on day one."

Bergson said reps realize the electrical market is changing in other ways, too. They know when the electrical industry comes through the other end of this recession, parts of the industrial base that went overseas or out of business aren't coming back. Smart reps are proactively searching for new accounts to replace this lost business, he said.

"We are seeing reps do much more statistical analysis of the marketplace, customers and potential customers. There is much less 'chasing smokestacks' and a lot more target marketing that identifies potential customers. The rep first goes in and qualifies that the customers is a user of the product. When they get established with a new customer, they ask, 'What else do I have that you might need?,' or, 'What do you need that I can provide for you?'

"Smart reps understand if the customer wants to buy the product a certain way, they can't say, 'No you can't.' Their answer should be, 'Let me help you do that as conveniently as possible.'"

When Bergson reflects on how life will change for NEMRA reps in the future, he looks to other industries for inspiration. In the food-service industry, reps are already experiencing trends such as consolidation. But food service reps are also seeing the rise of national reps and reps specializing in single markets. He has discussed these trends with Mark Baum, now executive vice president of the Grocery Manufacturers of America (GMA), and said the benchmark issues in that industry are the same in the electrical business.

"The bigger reps are getting bigger and the smaller reps are getting more focused and more niche-oriented," he said. "It's very difficult for a small rep to become a successful big rep firm. It used to be that a rep could grow in a natural progression. It's very difficult to make that move now with the mergers and consolidation taking place. This 'start small, get big' growth strategy is not as easy as in the past. That doesn't mean that being small is not a very profitable place to be."

One reason for this consolidation is that a large regional or national customer may require it. Bergson said in the retail world, some reps only serve one customer - Home Depot. This is happening on a smaller scale in the electrical business, too.

"Fox-Rowden-McBrayer has gone from nine states where they are electrical to 12 to 15 states on the electronic side of the company's business where they have to mirror the BellSouth footprint," he said.

Bergson said at least one electrical rep has brought together several different rep organizations in different product markets.

"Hugh M. Cunningham in Dallas has nine rep organizations serving the Texas market out of a central warehouse/operations center. They have rep firms that focus on plumbing, pipe, valves and fittings, turf maintenance, retail and electrical."

For reps just getting started in the electrical market, these trends can make the cost of entry much higher. Bergson said reps can't start out today with "one product line, a smile and a briefcase."

"Instead they must have a professional selling organization," he said. "The capitalization to get started is much more difficult. Customers are demanding immediate answers to their questions. Time is money. You can't leave a message on a guy's answering machine and have him get back to you next week. People are much more connected, and you must be a much more sophisticated sales organization than before."

That being said, when new rep agencies get started today, it's often the result of someone leaving an existing agency to start his or her own business. "That's still one of the more common ways news agencies start," said Bergson. "You have to be better capitalized and be sure some lines are available that provide some near-term income. I don't see as many people starting rep firms because they know the territory, have a good reputation and a hearty handshake. It takes a lot more careful planning."

Along with struggling to run profitable businesses in today's tough business climate, Bergson said it will become increasingly important for reps to remind manufacturers, distributors and end users about the importance of their value-added services, said Bergson.

"Reps need to position themselves as the go-to solution provider in the territory. It's a mantra of sorts with NEMRA to get people to mentally reposition the rep in the channel of distribution that it's a rep's job to facilitate the flow of goods through the channel of distribution. Having said that, I also need to say factories make stuff and consumers consume it. Until someone consumes something, there is no need to put another one into the supply chain. The rep's job is to create satisfied consumers by providing a variety of services throughout that market channel and facilitating the flow."