Early this year Agency Sales reported that a major electrical manufacturer — Schneider Electric — had decided to depart from its traditional method of taking products to market via factory salespeople in favor of 10 U.S.‑based independent manufacturers’ representative agencies. The reps that the manufacturer decided upon boast an average of 25 years’ experience selling automation and controls products and have a combined total of 100 salespeople selling the Schneider package in the local market areas.

In announcing the sales and marketing change, a company press release noted, “In addition to extensive market knowledge and expertise of the motion, drives and control and signaling products, these new sales organizations will help us provide better service and local technical support for our customers by working closely with our existing channel partners.”

Enthusiastically welcoming the change was Ken Hooper, president of the National Electrical Manufacturers Representatives association (NEMRA), Portsmouth, New Hampshire. According to Hooper, “While the speed with which it happened was surprising, Schneider’s decision to employ a team of independent manufacturers’ representatives was not. Schneider was quick to seize upon a disruptive market opportunity that they felt would better position them with their industrial automation customer base for the long term.”

Hooper continued, “At NEMRA we are seeing a steady surge of manufacturers, both well-established companies as well as new market entrants, soliciting sales rep agreements with our members. These firms realize that apart from the economic benefit of employing independent manufacturers’ reps, the local market intelligence and strong customer relationships that the reps possess make them the best selling model for growth.”

Keeping Open The Lines Of Communication

Principals should find some interesting feedback when reps responded to a question concerning unilateral changes in rep-manufacturer contracts. Here’s the question as posed by a MANA member: “How do reps deal with principals who want to make unilateral changes to the agreement. How do you deal with this situation?”

Reps who quickly weighed in with responses cited the importance of up-front negotiations and continued communication to address problems that might occur.

One rep noted that in his opinion, “There really is no way to deal with these sorts of actions if you did not negotiate a fair and long-term termination up front. You either need to stand tall and say ‘no’ with the understanding that they may terminate the contract entirely or just grovel. If a principal is not paying us substantial money up front or turning over substantial business when we start the relationship, then we require a long termination. That termination clause is applied to changes in commission or territory even if the whole contract is not terminated.”

He emphasized something that MANA has long recommended: “The best contract you will ever negotiate is the one that you negotiate first.”

A second rep stressed that he believed “The best way to deal with the desire of a principal to make unilateral contract changes is to engage in dialogue as to the rationale and benefit to all three parties — the principal, the customer, and, of course, the rep company.” He continued: “Several of my principals have wanted to change aspects of the signed contract and after careful and thoughtful negotiations, we always arrived at an acceptable solution. As in all negotiations, this is an opportunity for the rep to also ask for an alteration to the agreement. For example, in a recent negotiation with one of my principals, they asked that I take a reduced commission on a sale where the customer wanted to work direct with the manufacturer. There is no reason for me to agree to this in an exclusive contract. However, rather than see that as a major problem, I took it as an opportunity to extend my termination phase from six to 12 months. The contract was altered accordingly and the principal, customer, and I (the rep), all got something that was important to us.

“As all good salespeople know, if you are forced into making concessions, listen carefully and ask for concessions in return. As with all negotiations, the ultimate power is to be able to walk away, and while doing so, remembering the benefit of the many state commission protection acts that apply.”

Continuing his explanation, the rep explained that the customer he described in this particular scenario “had historical ties to the company, and I fully understood the benefit of keeping that major customer and referral site happy. As for the reduction in commission, I did consider a longer termination phase to be more valuable, given the number of sales I had in the pipeline. As I explained, I can always walk away, but instead I chose to maintain the relationship and improve my contract. Personally I do not think it is a productive philosophy to slash and burn every principal that says they want an alteration to a contract. Instead I find it more productive to weigh the options and negotiate the best outcome. In this particular situation, walking away would not have been a financially savvy move. Anyway back to the original question that was posted. How does one deal with it? This is how I prefer to deal with it. It’s situational for sure, as are all these topics.”

Lessons Learned From A Past Career

During a break between sessions at an industry conference earlier this year, the national sales manager for a manufacturing firm explained how his past life as an independent rep had proved so valuable to him in his new position. “When I was a rep I was probably just like everyone else. I complained about everything from writing sales reports to having to entertain visits from the home office. Tasks like these took away from my time with customers and I resented it. I especially resented the insistence on the part of several of my principals to provide them with sales reports. I had little or no faith that they actually read them and experience showed me that they rarely — if ever — took any action based on what I had communicated to them.”

That’s why, he maintains, “When I found myself on the other side of the desk, I would make it a habit to level with my reps. Take the subject of written reports. All that’s really about is communication. If a rep takes the initiative either by e-mail, phone call or whatever, and just regularly keeps me in the loop regarding the important things that are happening in the field, I’m never going to raise the subject of sales call reports. Nobody likes a surprise and neither I nor my reps can afford to keep secrets from each other.

“When I communicated this philosophy to my reps, they couldn’t have been happier. The good ones — and most of the ones I have are the best — go out of their way to let me know what’s happening.”

So too is it with what might be considered a sticky subject for some reps — field visits. “I’m not going to leave my office and travel with a rep if there’s no reason. If the rep lets me know he could use my presence or some personal input from the factory, then I’m there in a flash. No questions asked. Otherwise, I’ve got more than enough work of my own in the office.”

Cross Training Catches Manufacturer’s Eye

What manufacturers look for in a rep firm has long been fodder for discussion when reps and manufacturers get together. When that subject came up during a seminar this spring, one manufacturer was quick to identify a source of attraction when it came to his appraisal of a rep firm. “We’ve got one rep firm — a three-person operation — that has gone out of its way to make sure each of its salespeople is fully aware of what the others do. This is especially valuable when one of them is absent from the business for any period of time. Whenever that occurs, we’ve found that there’s never any lapse in communication with us and no questions are left unanswered.

“We find this valuable because with some other firms, there hasn’t been this level of cross-training. We’ve even had occasions when a problem has to be solved or a question answered, and there’s no one there to take care of it.

“I’d recommend that this ought to be a major consideration for any manufacturer when they’re considering whether to sign on with a new agency.”

The Value Of Relationships

Here’s one rep’s view on how important it is to get to know his principal’s decision-makers: “We truly think of ourselves as partners with our manufacturers. Our reputation and longevity draw some manufacturers while our industry focus attracts others.

“I’ve made it a priority to get to know the manufacturer sales management chain. Beyond getting close to our regional managers, I really enjoyed getting to know the national sales managers and where possible, the vice presidents of sales and the presidents of the lines we represent. We are sometimes painfully honest with each other, but I believe it helps us move forward during the constantly changing landscape in our industry.”

Our point in communicating these words is that this sounds like the kind of rep just about any manufacturer would love to partner up with.