With a plethora of entrants bringing new and added value to the hardware market, sales agencies are becoming more relevant than ever. Thomas Prince takes a closer look at these third party operators and at how they can help your bottom line.
For many small to medium operators, the cost of keeping reps on the road – salary, super, commission and car can be unproductive. For large players with integrated sales force, obtaining the additional margin in some areas can be impractical. For outsiders, entering a new industry has its inherent problems. Sales agencies work to take care of all these requirements (and more!) by becoming cost effective alternatives and/or supplementing the current sales force.
Sales Agencies: A Snapshot
Sales agencies are third party representatives that work on behalf of suppliers and manufacturers. The key difference to their in-house counterparts is that they usually represent more than one client and/or brand. A sales agency might work in conjunction with the in-house sales team to add further value to the client’s business requirements, or they may represent the supplier as a sales force within the industry.
What can sales agencies offer?
Or rather, how will spending money on sales agencies help your bottom line? Sales agencies will carry your products and maybe even wear your company attire during sales calls. As your field representatives they will conduct your business to the best of their ability – but they will do so for all their lines.
A sales agency adds value to your business by operating on greatly improved efficiencies of scale and by finding niche specialisations. They represent multiple lines which means they offer competitive services with reduced running costs, such as shared management costs. In addition, sales agencies bring with them good market access, so they can ensure quick delivery and maintain an effective presence. This makes them highly beneficial to smaller to medium enterprises who lack that required critical mass to do this on their own.
Another benefit of using sales agencies is their capacity to perform routine tasks like vendor refill. For obvious reasons this is essential for continued viability and regular designated calls are often a key agreement with big retailers. Many companies will find this impractical on their own so getting an agency to do it instead makes sense. The agency looks after it for you and also adds value along the way, since the agent is a professional seller who can educate the retailer’s floor staff in understanding the business and product lines better. Also, sales agencies can be very effective at new line introductions to the market.
Sales agencies can also help by assisting the in-house sales team or fulfilling some critical aspect. For example, the in-house team services major retailers but doesn’t have the numbers to work the next tier. A sales agency can do this on their behalf, bringing in further business without diverting resources at the expense of the in-house team. The reverse is also true – the sales agency might service existing retailers while the in-house team seeks out further business. Large players might also embrace mixed sales representation.
A large company that needs penetration in remote regions might not have the resources for a lower threshold. An agency with a local presence can make this worthwhile, and even in remote regions a local warehouse could mean next day delivery.
Companies that operate across multiple industries also use mixed representation. In one case a large manufacturer saw an opportunity for its healthcare product in hardware retail. They had a seasoned in-house sales force for their usual market but had no presence in hardware retail. By employing a sales agency specifically to work with hardware retailers, they not only obtained that extra margin but also avoided the potential problems of entering unfamiliar territory.
In short, agencies are flexible cost-effective alternatives to integrated supply chain and distribution systems. They can offer access to a market that might not otherwise be available and are generally well received by the retail sector because of the benefits they provide in support and interaction. They are particularly useful to smaller players (as well as importers and overseas suppliers) and their ability to add value is demonstrated by the fact that they are used across the industry, from large suppliers and manufacturers with firmly established sales forces and distribution networks to small players in need of representation.
With a substantial pool to choose from no two sales agencies are quite alike. Some factors worth considering include the following.
We all know how the vast distances between urban centres affect us (especially with increased petrol prices). So when considering a sales agency, what will the level of support be? What kind of presence does the agency have in individual states? Will water barriers and remote locations require extra consideration? Agencies will have different levels of coverage in terms of warehousing and distribution networks, so how will this work with your current arrangements?
Clients and sales agencies want value for money so a commission based system is often the best solution. By using projections a supplier or manufacturer can predict what is to be paid to an agency. Commissions reflect product performance, meaning they are a good overall indicator. Since commissions are a variable cost they can be beneficial in times of economic uncertainty. Commissions are, however, directly relevant to sales targets. In some cases an agreed fixed cost may be better, something which some suppliers and manufacturers prefer.
Which retailers is the agency expected to service, and what is practical for the agency? In a vertical market, coverage usually starts from the top, so is this what the agency is going to offer its clients? While an agency will attempt to provide the most effective level of service this will depend on your existing activities. Someone with no sales force in hardware retail might want the most effective coverage from the top down, while someone with an existing sales team in hardware retail might want the agency to service existing retailers so that the in-house team can acquire new business.
What kind of innovative differences will the agency offer and in what ways will they add value? Many agencies use part time or casual staff while others structure their staff hours so that they work only during the most productive part of the day. Some agencies are renowned for using sophisticated technology. They might offer custom reporting in the form of timely updates over the web, even straight to your PDA if you like. This sort of technology might need some adjusting to for it to be integrated into your current setup.
Conflict of interest
A potential conflict of interest may arise if an agency is faced with the prospect of representing two competing products. It goes without saying that this is best avoided and so most agencies will offer a confidentiality clause. It is in the interests of a supplier or manufacturer to understand an agency’s rapport with its other clients.
Another service is merchandising. This is usually charged by the hour and covers a wide range of services. A client representative may lead by example from which the agency reps will follow. Alternatively, the agency might be entrusted to overcome differences in individual stores when working with planograms that must be adhered to. There are many more ways of going about it and they will depend not least on the product.
There are many additional services offered by agencies that may be relevant to a client. Just a few of the many things on offer include relays, refits, recruiting, new store setups, assistance at trade shows, onsite audits, ladies nights, seasonal marketing, mystery shopping, even assistance at head office where required. This is on top of the many expected functions that are part of the services offered.
Where to start?
A good place to start when considering a sales agency is what categories the agency carries and how many lines are represented (an estimated average number carried by agencies in retail hardware is between three to five). In a business that is heavily dependent on commission it is also fair to assume that an agency that has endured or grown is probably doing it right. A broader factor is the fluidity of the market and continued industry rationalisation. Through the merging and acquisition of companies some highly centralised sales forces have been created, often at the expense of existing representation or existing relationships with agencies. The economy is as much a relevant factor as any.
One wild card about which there is still uncertainty is Enterprise Resource Planning (ERP). ERP is a form of automated monitoring that may eventually affect services like vendor refilling. The theoretical application of ERP in retail works on the principle that items scanned through checkouts on the retail floor will count towards a minimum threshold. An alert is automatically sent to the supply network after a pre-determined number of scans (i.e. units sold) are registered. So for example, if a store has fifteen units in stock and ten are scanned through the checkout, the supplier will automatically be notified to send ten units when the threshold of five is reached. ERP has been criticised for its lack of a human component, its inability to work around extraneous factors like theft, damage and human error, its dependence on complex technology and the fact that nothing really beats a quality face to face visit. ERP was recently introduced in the USA by Home Depot but the jury is very much undecided on the outcome.
We encourage you to have a closer look at the next few pages, where numerous sales agencies in hardware retail are profiled. This introductory article was compiled by Thomas Prince, the Australian Hardware Journal’s Assistant Editor, with input from key people in associations, retailers, sales agencies, suppliers and manufacturers. We welcome your feedback and will bring you another sales agency feature in July.