DISTRIBUTION SALES AND MARKETING BEST PRACTICES

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1 DISTRIBUTION SALES AND MARKETING BEST PRACTICES F. Barry Lawrence, Ph.D. Director, Industrial Distribution Program Director, Supply Chain Systems Laboratory Texas A&M University Fellow, NAW Institute

2 Consortium Members

3 Consortium Methodology

4 Sales & Marketing Optimization (SMO) Best Practices 1. Market Segmentation Selecting your customers 2. Customer Stratification Measuring your success with customers 3. Sales Force Stratification Assigning sales resources to customers 4. Sales Force Compensation Aligning sales force company customers

5 Sales & Marketing Optimization (SMO) Best Practices 1 Market Segmentation 3 Sales Force Stratification 2 Customer Stratification 4 Sales Force Compensation

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7 Market Segmentation

8 Micro-segment Example Key Buying Criteria Technology Lead time Technical support Brand (supplier preference) Delivery support Low Volume Accounts Regional Accounts Yes and No National Accounts Quality Low Low and High High

9 Target Market Selection ALIGNMENT with company objectives (Revenue Expenses) Net Assets = Return On Investment

10 Segment Selection Matrix Micro-segments A B C D Potential Criteria Capability Investment Risk ROI

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12 Customer Stratification Model Customer Life (Loyalty) Gross Margin High Profit Low CTS Low Volume No Relationship OPPORTUNIS TIC MARGINAL No Relationship Low Profit High CTS Low Volume High Profit Low CTS High Volume Sustained Relations CORE SERVICE DRAIN Sustained Relations Low Profit High CTS High Volume Cost To Serve (CTS) Sales Volume

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14 Sales Force Stratification Corporate Goals / Objectives Based on: Skill Personality tests Willingness to perform Performance driven: # of new accounts GP$ Revenue $, etc Helps develop: Strategy Tools Training needs Rewards Helps develop: Healthy competition Drives performance

15 Quantitative Analysis Revenue and GP / Account FARMERS High revenue/account Low # of new accounts DEFENDERS Low revenue/account Low # of new accounts RAINMAKERS High revenue/account High # of new accounts HUNTERS Low revenue/account High # of new accounts # of New Accounts

16 Sales Force Stratification Real World Example Building materials distributor Total # sales persons (outside) : 23 Total # accounts handled : 956 Total Sales $ : $ 54,380,468 Total Gross Margin $ : $ 11,047,744 Timeline : Jan 08 Dec 08 Factors Revenue per account Average number of new accounts/year

17 Sales Force Stratification Revenue per account B FARMERS Average # of new accounts per year A RAINMAKERS A AB AA DEFENDERS HUNTERS B BB BA > $ 54,000 <= $ 54,000 <= 4 Accounts > 4 Accounts

18 Analysis Results Final Rank # Sales Avg # new Avg Sales $ / acct persons accounts / year Rainmakers 4 $ 76, Farmers 5 $ 127,154 4 Hunters 7 $ 32, Defenders 7 $ 29,638 19

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20 Customer Stratification Sales Force Stratification in rg a M s ro G Customer Life (Loyalty) High Profit Low CTS Low Volume No Relationship OPPORTUNISTIC MARGINAL No Relationship Low Profit High CTS Low Volume High Profit Low CTS High Volume Sustained Relations CORE SERVICE DRAIN Sustained Relations Low Profit High CTS High Volume C o s t T o S e r v e (C T S ) t n u c o A / P G n d a n u e e v e R FARMERS High revenue/account Low # of new accounts DEFENDERS Low revenue/account Low # of new accounts RAINMAKERS High revenue/account High # of new accounts HUNTERS Low revenue/account High # of new accounts Sales Volume # of New Accounts Sales Force Compensation Salary-Incentive Mix Metrics

21 Linking Compensation to Customer Stratification Example Compensation Type: Salary plus commission Annual Salary = $35,000 Commission = 8% of Gross Margin $ Who is more aligned with company objectives? Gross Margin $ Split Sales Perso n Revenue $ Gross Margin $ X 2 MM 400K Y 2 MM 400K Comp. $ 35K + 32K = 67K 35K + 32K = 67K Core Opp. Service Drain Marginal 60% 5% 15% 20% 20% 5% 60% 15%

22 Linking Compensation to Customer Stratification What real world data says? Example HVAC/PVF Distributor Gross Margin $ Split Core Opportunistic Marginal Service Drain Sales Person 1 70% 3% 14% 14% Sales Person 2 51% 12% 36% 2% Sales Person 3 86% 0% 5% 10% Sales Person 4 78% 0% 22% 0%

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