Do You Still Need a Lab Supply Sales Rep?
In this blog post we will address the question of whether having distributor sales reps call on you is still something customers want or need in the age of the internet.
The Traditional Role of the Lab Supply Sales Representative
If you had a procurement time machine and could take your lab back to 1975, things would look very different. For example, the two most popular give-away items people sought from their suppliers was a calendar and a wish book. For those who didn’t live through this bygone era, this is why these were such coveted items:
1. There was no such thing as a personal computer so you had to keep track of everything on paper. Aside from the obvious uses of a paper desk calendar you had a number of different lab supply sales reps calling on you each week because lab supply distribution agreements hadn’t been invented yet and you didn’t want sales reps bumping into each other in your office.
2. The wish book was how you kept track of what you needed for your lab. Even Visicalc wouldn’t come along for three more years. If you were a smart buyer, you handed your wish-book over to sales reps so they could see not only what you bought but who got the order last week when your competitor got there first.
3. Orders were written by the sale rep on the spot on forms with carbon paper to make copies, one of which you handed to the buyer, another you mailed (or phoned in) to your company. Another form was used for credits and returns. The rep WAS the company. He/she (more likely he back then) called the shots from how to price an item (even free was in their prerogative!) to whether an item could be returned for credit. He/she was in the full sense of the word, the company you were dealing with.
4. Business was typically steered towards vendors who took the buyer out for lunch and to the ballpark frequently.
Now let’s set our time machine 25 years later to the year 2000 and see how would things have changed? PC’s would be on everyone’s desk and everyone would now be using Excel would be the spreadsheet of choice having knocked off all competitors including Lotus 1-2-3. The number of sales reps calling on you (assuming you hadn’t recently signed one of those new sole-source distributor agreements) was far fewer than just a few years earlier. Industry consolidation had eliminated most competitors.
While the role of the sales rep was significantly diminished in 25 years, the sales rep was a valuable component to both the distributor as well as the customer for a number of reasons:
1. The sales rep still had the power to quote prices on items, even those that may have deviated from pricing contracts. And at this point, distributors had not started restricting the reps ability to discount beyond selling above what it cost the company to buy the item. Internet ordering was in its infancy and EDI was the preferred electronic ordering method for big business.
2. The sales rep was still the problem solver. Sales reps in this era were still hired for their knowledge and having a long, successful relationship with the customers large and small was of great value to both the distributor and the customers they served.
3. Sale reps were considered to be running their own business unit. There was a profit margin goal set and how these goals were achieved was left up to the rep. Failure to hit the goal in back-to-back years meant the end of a career. Achieving the goals was rewarded and a long tenure with the company was routine because each year the rep would learn more about the products, the vendors and most importantly their customers’ requirements.
4.Sarbanes-Oxley and numerous court rulings made graft rarer and put penalties in place that made distributors put the brakes on many of the tactics they previously used to enhance margins.
Now let’s go back to the present, get out of our time machine and compare with what we see today.
If you were to attend a national sales meeting of one of the large distributors today, what you would see at first glance wouldn’t look all that different. There are still a lot of sales reps in the room. It wouldn’t look notably different than the same room in 2000. But there have been many dramatic changes in the last 18 years that the outside observer would not see:
- - The average tenure of a sales rep would have decreased from over ten years to under two.
- - The average age of a sales rep would have decreased from 45 to 30.
- - The average compensation of the average sales rep would have decreased dramatically.
- - The formerly preferred scientific skills of a sales representative would no longer be seen by the company as a factor in the hiring decision.
- - Many of the customers who had sales reps call on them in the past were now asked to do business with a telesales rep instead or had no rep assigned at all.
- - The long tenured reps still employed would be assigned to call only on big accounts and their territories would no longer be based on a set geography.
- - Sales representatives authority to make pricing decisions, seek out new customers, alter or construct contract terms and many of the fundamental aspects of territory management would be under the control of company management.
- - Sales representatives are under extreme pressure to sell company branded items or from company owned business units over nearly all other suppliers.
So how do all these changes impact the customer?
To their credit, distributors do a better job today warehousing and shipping than in the past. The error rate is lower and stock-outs are infrequent. Since over 75% of the average customer’s total spend is on consumables rather than capital items, the lack of a sales representative isn’t an issue.
The net effect of having no sales representative or having one with no pricing authority is that you can’t negotiate prices. If you want discounted prices, sign a cookie-cutter contract and you will get them in return for your loyalty. When it’s time for a big purchase or when things go wrong, the lack of anyone you can deal with will suddenly become an issue.
Distributors have transformed themselves from companies whose mission statements have changed from “Go beyond our customer’s expectations” to “The Science of Supply.”
Over the years, distributor profit margins have been squeezed:
- Mega warehouses and lots more inventory and operating expenses.
- Group buying contracts (more prevalent in the clinical / government / medical research market.)
- The never ending battle for global companies between Thermo Fisher and VWR.
- CRO’s and outsourcing of R&D in the pharma sector.
- The escalating cost of fielding sales representatives.
- The internet has introduced many new competitors such as direct to-consumer life science manufactures.
- Large contracts which result in a larger proportion of business being 3rd party (low/no margin) vs. core (high margin / private label / corporate owned manufacturer) products.
- The increased cost of inbound freight and providing free shipping on outbound freight.
- Wall Street (investment banker) pressure to meet growth expectations well beyond industry averages.
- Continued acquisition and debt accumulation from sales between investment bankers.
Customers have been impacted.
One dynamic that will never change is that customers who choose to spend their money with your company expect you, the supplier to value their patronage. Their expectation is that the company they do business with will want to earn more of your business and value each order you place. Whether you spend $1,000 or $1,000,000 per year make no difference to you but it makes a huge difference in how you are treated by your distributor! It’s why airplane seats at the front of the plane and free drinks go to big spenders and the middle seats in the back next to the toilets go to the occasional flyer.
Some customers who purchase very few lab supplies are far less likely to buy from one of the big distributors. Thanks to the web, Fisher and VWR are no longer the “default suppliers.” While negotiation with a sales representative may no longer be possible, customers typically don’t spend money without at least some due diligence.
For the medium sized customer, should Fisher or VWR (or any other distributor) have a sales rep vie for your business and come pay you a visit? That question has been settled. The answer was determined by accountants and consultants whose spreadsheets have told them that it’s a net loss to them even if they win all of your business. If you aren’t willing to pledge loyalty by signing an agreement, it’s definitely not worth it. More than likely your account has been internally assigned to an inside rep so a field sales rep wouldn’t be allowed to call on you even if they wanted to.
In 2018, what is the benefit of having a sales rep?
Having a good sales rep is a lot like having a good lawyer. You may be able to get by without one for a very long time but when you have the need, having one you can call can be very beneficial.
There are two reasons to have a sales rep you can rely on:
1. You have a problem with an item you purchased from their company and you are not getting the results you need or expect via phone or email.
2. You are spending a significant amount of your budget on something they sell. Even better, the rep knows what you are buying, knows they have something that would save you a lot of money if you knew about the alternative and brought it to your attention!
The title “sales representative” may always have a bad connotation. In the world of lab supplies a better title would be “company representative” even though the majroity of the people who have this job today with major distributors understand very little about the products they are selling and have little authority to negotiate pricing. What value does a routine sales call/meeting with them bring to you?
What is still needed as much today as it always has been is someone within the company you are interested in doing business with who has the following:
- A vested interest in seeing that the relationship between your company and his/hers is good and if handled properly, will grow over time.
- Enough clout within his/her company with management to get things done that will win more or your business and increase your loyalty.
- An intelligent person with enough knowledge about his/her company and the products you are discussing to help solve problems quickly and efficiently.
- A person that has pretty good odds of being with his current company so that you don’t have to continually start over with the process of relationship building and re-education.
Today, do you still need a sales rep? If your purchase volume is very small, you do not. If your purchase volume is very large, your money will attract lots of attention and if you negotiate well, you will be richly rewarded. If you are in between these two bookends, you need someone with the above skills and motivation no matter what title is on their business card.