The Pros and Cons for Direct Sales Distribution Model

As I stated in my last blog, it seems if corporate America regularly changes their sales distribution methods with the latest trend orienting towards indirect versus direct distribution. I suggested there are a number of issues to consider before ones changes or shifts their distribution model.  So before one changes let’s look first at the direct model considerations (ones own sales force) of the three major models

 

Account control: If your want account control or your primary audience is the Fortune 1000; your should consider a direct sales force. Here the sales force can “influence” the potential customer (assuming they have a relationship with the customer), by having a working knowledge of the customer’s goals/strategy/needs. If the sales person has a trusted relationship, then he/she will be ahead of the curve regarding the customer’s next requirements.  This situation not only gives the sales person a heads – up on what might be requested next, but also can be used to keep the competition at a distance.

 

Product/service environment: If   the product is either complex or is an application that requires “in person” presentations, then the direct is the most logical consideration. Complex products or applications truly need some “hand holding” versus trusting that the customer will first read the collateral and second, understand the features and benefits of the product or service. The risk is too high that the customer will either misinterpret the products capabilities or even worse misread it and dismiss your product all together thereby opening the door to the competition.

 

Professional Services: If the products or applications require some form of professional service for pre or post installation in order to have an overall successful result; then the direct might be the best situation. The reason for this is that the sales force and the professional service providers stand a higher probability of being on the same page if they are within the same organization. This will offer an integrated environment and potentially a unique value proposition for your company.

 

Marketing support: Your marketing organization needs to support the following key functions for the direct sales model (there are others functions, but I have listed the key ones):

1-     Probably the most critical item is to fully understand the markets and customer requirements AND be fully integrated with the sales force in understanding the needs (versus wish lists) of the customers.  If marketing is not linked to the market environment and the sales force; then there will be many lost opportunities, misuse of resources and loss of leadership position.

2-     Clearly articulate the benefits and value propositions of the products or services. If the sales force is not excited or confident about the product, it will eventually show and the sales cycle will get longer and longer over time.  Second, sales people must be able to clearly identify where the product is applied and why.

3-     Competitive analysis – sales needs to know who the competition is, their strengths/weakness, the product’s strengths/weakness and how to position the product.

4-     Testimonials and reference customers – no one wants to be the first to buy, especially if it has the potential of a very large procurement. It is amazing how much faster and easier a sales cycle goes if the customer can talk to someone in his/her industry and get the “inside” on their experience.

5-     Leads, leads. Leads-   sales people are hunters and thus always want to know where the next potential customer is!

6-     How is the sales force being paid?  Think this one out carefully and don’t change it very often

 

Financial considerations:  Typically, the direct model has a higher sales cost (mostly because of compensation factors and supporting expenses). But if you want to have direct/control where sales focuses, what type of accounts  are being  targeting or focus on selling key products or services, then the direct model will provides this.

 

Below is a high level pros and cons regarding the direct model.

 

Direct Model

 

Functions                                Pros                                        Cons

 

Sales force                             Account control                       Costs

                                                Trusted partner                         Potentially very tactical

 

Product/service                    Address complex products      Long sales cycle

                                                High ASP                                    Expensive support

                                                Address applications                lengthy engagements

 

Services required                   Sales expertise                          Potential for lack of focus

                                                Additional revenues                  lengthy engagements

 

Marketing                               Inputs for requirements           Potentially opportunistic only

                                                Awareness/branding                 Potentially sending mixed

                                                support                                        signals

                                               

Financials                              Direct/control targets/              Complex compensation

                                                opportunities                            structure, high  S&M

 

In summary, by doing your due diligence of seeing how these considerations correlate to your strategy and weighing whether, the pros outweigh the cons relative to your overall strategy; you are close to deciding whether to move to a new distribution model.

 

Next time, we will look at the indirect model in more detail. Until then, happy selling!

 

RHL 8/6/09

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