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In years past Agency Sales magazine has addressed the subject of house accounts via coverage of industry presentations and round tables, personal interviews and in a variety of survey articles. It should come as no surprise to anyone who is an agent, who works with agents, or someone who observes the business model that includes independent manufacturers’ representatives taking products to market that house accounts are the exception and not the rule. However, they do happen and they do exist.

When house accounts rear (what some might consider their ugly) heads, it’s generally for reasons such as:

• Cost — the account reached a point where it became too big and the manufacturer figures he could save money (i.e., the agent’s commission) by covering it from the home office.
• History — No agent had a hand in getting the business originally and besides “It’s always been done this way.”
• Customer’s preference — “The customer told me he doesn’t want to deal with reps. He only wants to see people from the home office.”
• Family and personal reasons — “Our factory guy is my son-in-law and he knows the account.”

Despite these and other reasons, house accounts don’t work very well, according to a manufacturer, an agent and an industry consultant/observer interviewed for this article.

Hank Bergson, who has spent time as a manufacturer and even more time as the president of the National Electrical Manufacturers Representatives Association (NEMRA), maintains that house accounts are “the focal point of what I loosely call the institution of a dis-incentive program.”

Bergson, who conducted MANA’s Manufacturer Seminar in May, explains that in that seminar and others he has conducted, “the subject of house accounts doesn’t’ come up that often. When it does, however, we’re fairly strong in defining two lines of discussion. First, we remind everyone that everything in a rep’s contract is negotiable. As a result, if the subject of house accounts comes up during negotiations, there should be no surprises for the rep. The second point, we emphasize is that any contract, order, service, whatever, a rep has negotiated and has been managing for a number of years, should never become a house account. He got and kept the business and should be paid for his efforts.”

Expect a Negative Reaction

Typically, Bergson continues, “Any effort to turn an account into a house account is going to get the manufacturer a very negative reaction from his reps. Typically, the rep will maintain, ‘From the beginning you said that this was my job and I should be allowed to participate in the business. Now you’ve decided to change things.’”

Bergson notes, “In my years of experience, when there have been house accounts manufacturers haven’t performed especially well servicing those accounts, that is, in comparison to how reps have historically performed. In comparison, they don’t develop relationships and don’t devote the needed time and energy to develop business — all things that reps do especially well. Keep in mind that the rep is constantly looking to develop and grow relationships, maintain the business he already has, and to develop new business.

“What can happen is that the manufacturer that has moved to house accounts sits there all fat, dumb and happy with the rock-bottom prices he provides a customer. But then the customer stops buying and the manufacturer asks: ‘What happened?’ What happened is that greed and shortsighted views have taken over and the manufacturer ultimately will lose track of what is happening in the field.”

Someone who has hardly lost track of what’s happening in the field is Floyd Griffiths, group leader, industrial sales for WesTech Engineering, Salt Lake City, Utah. WesTech is a manufacturer of equipment for the water and wastewater industries and the company is involved in municipal treatment plants, but also does a variety of work in other industries (mining, power, oil and gas, etc.)

House Accounts are Rare

According to Griffiths, who bylined an article that appears in this issue of Agency Sales, “Although this may vary by industry, in the industry I’m in, house accounts are rare likely due to the nature of the product. Because we’re not selling commodities, customers often buy specified and engineered products through third-party engineers who act for the owner to engineer, procure and contract. This being the case, these products are sold through the bidding process. Bidders are technically qualified, then purchase is based on price.

“As a manufacturer I believe if you are going to sell through reps you should resist the idea of house accounts. House accounts send a message to your rep sales force that you are not committed to selling through reps. Also, they send the wrong message to the employees of the company that profits are more important than the commitments you made to your rep partners.”

He continues, however, that there may be occasions when house accounts are advisable. “I believe that a house account can be a good thing if it is identified as such up-front and if the boundaries are clearly identified. For instance, sometimes products or industries can be very specialized. For example, we sell products in the fertilizer industry. These customers are not necessarily regional, but the major players know each other for the most part on a global scale. In this sense it might make sense to make all fertilizer accounts into house accounts. This way, you don’t send a general territory sales rep to see a customer when they would be lacking in the technical expertise and global breadth that the customer would respect and require. Also, you wouldn’t just pay commissions when the rep did not add value.”

When he was asked what a rep should do in terms of selling/servicing a house account if he has accepted the existence of such an account, Griffiths offers that “I don’t believe a manufacturer should ask a rep to service an account or sell into it if he’s not willing to pay a commission. On the other hand, if the rep is looking to sell other products in their portfolio, the house account contacts may be of value to them. In this regard, it might serve both the rep and the manufacturer well to share contacts from the house account in return for a general follow-up now and then by the rep.”

Finally, in answer to what he as a manufacturer would expect a rep to do when presented with the existence of house accounts, Griffths says, “This depends. Again, if the house accounts were identified in the beginning, this is one thing. I would expect reps to ask manufacturers to honor their agreements and the contracts that they made when the territory was committed. However, I also recognize that things change. If I was the rep, I would go to the manufacturer and ask why they felt the account was better serviced from within the manufacturer’s organization. If it was something I could remedy, I would offer to do so. If it was strictly a matter of commissions and the account required less effort, I would offer to accept a smaller commission in favor of the volume. I think it just boils down to why the manufacturer chose to make it into a house account. The bottom line is, manufacturers need reps and reps need manufacturers. It’s a symbiotic relationship.”

Faulty Reasoning

And, finally, there’s the view of the independent manufacturers’ representative in the person of Doyle Evans, the former president of Pinnacle Marketing Inc., Raleigh, North Carolina. Evans, who several years ago wrote an article on the subject of house accounts that appeared in November 2008 Agency Sales, maintains that “I have trouble understanding why a manufacturer would ever think of asking a rep to accept a customer as a house account. Usually when this happens the reason is ‘low margins.’ To me this means the manufacturer is not running his business very well and they are a failure. As a result, they want to make the business more profitable by taking it out of their rep’s check rather than trying to figure out why they cannot compete. The next reason we hear the most is, ‘We already have all the business at that account.’ A lot of major business has been lost due to this philosophy. Every customer deserves to be called on and serviced. As I have said many times, if you are not calling on your customer, your competitors are.

“My belief is that — contract or no contract — the manufacturer should never think in terms of house accounts. But if they do, they should consider the consequences on rep morale, customer reaction and rejection of the idea, and competitive response.”

Just as Griffiths, the manufacturer, Evans does see where on occasion there may be reason for the existence of a house account. “Sure, it can happen. Consider for instance, the rare occasion when the manufacturer has serviced the business so poorly and the relationship has turned so sour that it is tainting the representative and his other lines. This is true especially if there may be legal action taken by the customer. In all honesty, I have only witnessed this a couple of times in my career, but clearly it is better at this point for the manufacturer to step up to the front lines. This is not to say the manufacturer should not continue to pay the rep a commission, especially if he worked many months developing the business for his principal. The principal can only hope the rep uses this as seed money to continue to develop other customers.”

Evans continues that “It is very hard for a rep to service an account for a principal if it is a house account. Often we are told if you get new business we will pay you on it but not on the legacy business. This proposition is rarely profitable for the rep and often the customer gets confused. They never understand why you cannot service them on old business but want to discuss new business. In the end the rep has to support the legacy business for free or risk his reputation.

“In addition, if a manufacturer has existing house accounts they should never expect or ask the rep to step in on a temporary basis. They should either turn it over to the rep or service the customer directly. As they say, there is no such thing as a free lunch. So, when turning over these accounts to the reps the commission stream should start immediately with the booked business.”

Finally, Evans looks back at the years he spent as a manufacturer when he offers some advice to agents: “I would expect reps to make a decision on how profitable a line would be without house accounts. Is there enough seed money to justify taking on the line and other customer potential to grow sales? I would also expect the rep to wonder how loyal a manufacturer would be to them down the road if they are successful at building my business in their territory. Especially if the rep develops a big account!”

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