A Q&A session on MANA’s LinkedIn Discussion page recently struck at the heart of a subject manufacturers and their representatives have undoubtedly encountered several times in the past.

The question that kicked off the discussion was: “What can be done about customers who want principals to deal directly with them and remove the manufacturers’ representative from the relationship?

“For example, one MANA member recently told us he’s seen RFPs where the customer requests two quotes; one with the manufacturers’ representative and one without. A principal who recognizes the value the manufacturers’ representative provides would return that quote with a higher price when they eliminate the manufacturers’ representative because they know that they need someone calling directly on the account and hiring a direct person is more costly than outsourcing sales to a manufacturers’ representative business.”

An expected response was immediately forthcoming from one agent who described his experience in the aftermath of just such an incident: “One of my customers asked one of my principals to fire me and reduce the price to him. The manufacturer told the customer ‘I will have to increase your price if I fire my rep as it will cost me more to service you.’”

A second MANA member related a scenario that unfolded when a customer made a similar request of the manufacturer: “I was told not that long ago by the vice president of a major national distributor that ‘We don’t deal with people like you,’ meaning reps. Well, it has been almost a year and they still do not have access to a product line they asked for because we were doing so well with a competing distributor. This kind of narcissistic attitude has cost them sales at a very high margin for all of my contracted product lines. We provide a service as reps that the manufacturer cannot or does not have the expertise to manage themselves. This gives you more control over the sales in your defined territory and at worst, the distributor trying to cut you out of the sale loses business they would have developed with your assistance otherwise.”

While those responses were hardly unexpected, there was much more to the discussion that should be of special interest to principals.

Commitment to Independent Representatives

The owner of one MANA-member agency provided his thinking on the matter: “The key is to have principals committed to using reps as the method to go to market. In those cases the principal simply says to the customer: ‘We use reps to reach our marketplace as the lowest-cost tool available to us. This allows us to offer you the best price. I am not going to tell you how to go to market with your product but I do know that there is a cost of sale regardless of what method you use. We use reps. I suggest that you take advantage of the value our reps bring.’

“If your principal is not willing to present that face to the customer then you should look for a different principal. “Finally and most important, your contract (1+ years termination) should reflect the commitment of both parties to each other.”

Another agent’s advice was to seek legal remedy in such a situation when he said, “Somebody needs to sue one of these companies for tortious interference. The rep has a contract with the principal and anyone trying to influence that relationship needs to be held to account.”

That opinion brought an immediate response from one of MANA’s attorneys who maintained that “Each state has different requirements as to what constitutes Interference with Contract/Interference with Prospective Advantage. There is already a good deal of precedent in this area.”

He continued, “In general, the buyer should be on notice that a valid written contract exists between you and the principal. Trouble is that to enforce your rights, you would sue your customer — and even your principal. Suing a customer is never recommended. However, if you have no relationship, then there is much less to lose. Keep a written record of all communications.”

He added, “You could always make a side agreement with the manufacturer and work behind the scenes. The consideration contained in the agreement should be your securing — not servicing — the customer and commissions should be on-going.”

Vision of How to Go to Market

Testament to the fact this subject struck a chord with independent manufacturers’ representatives is the number of agents who weighed in on the topic. Some additional comments that might serve as a guide to manufacturers considering removing agents from the channel include:

•   According to an agent in the Midwest, a reasonable settlement of such a discussion depends to a large extent on the principal’s vision of how he or she plans on conducting business. As a result, “From the very first day, reps must keep their eyes open for aligning themselves with principals who really have a vision of what it takes to establish a long-term relationship. This is done at the same time you locate principals who provide quality products and service. Sure, I know this is easier said than done but at the end of the day, it all comes down to the manufacturers’ representative’s experience, his contribution and his expertise. It’s important for the rep to do all he can to become a part of the principal’s business. Try to become a right hand to them.

“Also, consider for a moment a situation where the rep signs business with three customers for a principal. Do you think a principal will be inclined to give up his rep for just one order? I don’t think so.

•   Citing MANA’s role in working with principals, another rep noted that “One of MANA’s roles is to educate manufacturers about the rep function, which can be confusing for some. However, I’m sure there’s a need to also educate customers about reps. If they view reps simply as ‘middle men’ between them and their vendors, they’ll think of reps as only adding to their cost.

“Next, I appreciate the comments about principals’ need to be committed to reps. However, it may be more complicated than that, particularly when an established customer is purchasing millions from a principal. The principal is threatened with losing a significant amount of sales if it supports its reps as opposed to getting rid of the rep and keeping the business.

“Finally, I have no idea of the legalities of these types of actions, but as has been suggested, a rep that sues a customer would probably eliminate all future opportunities with that customer. It’s a difficult position for the rep.”

•   Being able to understand a situation and showing a willingness to compromise can also play a role in such situations, according to another agent: “I have a principal that was offered a chance to conduct business with a company I was trying very hard to break into. The catch was they didn’t want the rep involved. The principal apologized to me but took the business. I let him know I wasn’t happy but he didn’t want to end our relationship because of the other business I brought his company. We agreed that I could take on competitive lines as long as I didn’t take them into their existing customers. Not the best solution, but one that worked out well in the end.”

•   Another Midwestern agent explained that “I don’t picture my principal giving in to such low shots, but if that happened, it could be a breaking point to our relationship.

“Since the rep and the principal are partners in profit, there are times when closing the business may indeed require the principal to be the lead communicator with the customer; for example, when long-time relationships exist, new technical developments need to be discussed, and very rarely the customer who demands they only correspond with the principal and not have a third party involved.

These rare instances should be looked at in the context of closing business quickly and moving on as opposed to standing one’s ground and making an issue of it. In the few instances that I have experienced this, I found it productive to have the principal copy me on all correspondence and allow me to be the person that forwards the relevant PDFs and quotes. If one has an exclusive contract there is no financial loss either. Sometimes it is what it is, and our energies need be focused on closing business with other customers and working on strengthening much more rewarding relationships.”

•   An interesting summation was offered by an agent who began by stating the obvious: “This question is trickier than it seems. If the customer is buying enough they may be bold enough to ask the principal to remove the rep. However, in such a situation I’d maybe intentionally manipulate a deal that does cut me out — at least in the customer’s eyes — for an off-contract reduced ‘finders’ fee where the principal cuts the cost at least equal again to your reduced fee, and the customer has to give something extra (e.g., 30 percent larger purchase, delivery scheduling flexibility, model number and slight feature changes, cash in advance, five-year sole source) so their request is not free. This ought to at least be considered or else next year’s new demand won’t be fun.

“In theory the agent might earn more in the end. In another twist, in such a situation the principal may determine you being a team player in a difficult large deal could yield rewards greater than that customer — add another state to territory, increase ‘standard’ commission rate, liberal co-op ‘marketing’ funds.

“I once cut a deal when I was a principal where we paid a rep firm’s full-year salary cost for an additional salesperson, as a side deal because they helped us elsewhere.

“Bottom line: I will happily get cut out if the circumstances merit and my eventual bottom line may increase.”