OurSalesRep Articles

Exclusivity May Be a White Elephant
Does Territory Exclusivity Benefit Suppliers or Sales Reps?

Vincent M. Cramer

 

Does the term “white elephant” conjure up a positive, negative or a murky image in your mind? White elephant is defined as “a burdensome possession; creating more trouble than it is worth.”

The term originated in ancient Thailand when white elephants were regarded as holy animals. Keeping a white elephant was an honor, but it was also a very expensive undertaking. The owner must provide the elephant with special food and give access to the people who wished to worship the animal. If a Thai King became dissatisfied with a subordinate, he would give him a white elephant as a “gift.” The gift would, in most cases, ruin the recipient. White elephants exist to this day but they have taken on modern manifestations.

For sales reps in the electronics industry, today’s white elephant has a name, Exclusivity. Territorial exclusivity gives a manufacturer’s rep the exclusive right to provide sales coverage within a geography defined by the supplier’s contract. As it was in ancient times, the value of a white elephant is in the eye of the beholder. Suppliers, sales reps and rep owners most likely have disparate views of this lovable alabaster animal that we call Exclusivity.

Since the value of a white elephant is very subjective, can we assume that territorial exclusivity in the electronics industry persists because suppliers and sales reps agree on its enduring value?

For the Love of the Bluebird

It is impossible for a rep firm to provide adequate sales coverage for all suppliers, at all accounts in its territory. Within an exclusive territory, the possibility exists that “bluebird” opportunities may sometimes appear. That is good news for everyone. The business opportunity is considered a bluebird because it was a pleasant, but unexpected, surprise. Sales coverage for many customers can be viewed as benign neglect on the part of the sales rep. Providing comprehensive sales coverage would be a poor business decision because it would be a dilution of the rep’s time, assets and priorities. Serving the demands of exclusivity also derails the rep owner’s business focus, because many suppliers feel empowered to make unfettered demands on the rep firm’s priorities and strategies.

Much like an elephant in times of drought, sales reps now operate in an ever-shrinking habitat. The number of customers have declined due to the economic downturn, globalization and outsourcing to name a few contributing factors. Just as an elephant herd needs to extract as much water as it can from ever-shrinking watering holes, sales reps must extract more revenue from their shrinking customer base. To extract more revenue, sales reps must provide more value to each target customer. Sales reps will require more suppliers that have the products and services that the customers need. If your habitat is shrinking, you must dig deeper, not range farther.

It Does Not Add Up

Why would a supplier grant a rep firm territorial exclusivity? The number of sales reps in a manufacturer’s rep firm is in single digits, but the number of viable customers in a typical territory number in the hundreds, or maybe a few thousand. Simple arithmetic yields a glaring disparity — a vast number of accounts will not receive comprehensive sales coverage. The caveat often mentioned as the remedy for this disparity is that “reps will manage the distributor sales people, who in turn will provide sales coverage to all of the accounts in the territory.” Sure, and they will get additional support from Santa Claus and the Easter Bunny.

Why would a rep firm want territorial exclusivity? Exclusivity has a long history and is entrenched in the historical sales model. Is that reason enough to sustain it? Exclusivity thrives because reps do not want to kill the bluebird. It lives on because of the illusion that bluebirds might hatch in hidden nests and generate windfall revenue. It is time to do some field research and find out if bluebirds have migrated or become extinct? Bluebirds should probably be placed on the Endangered Species list. In the current market, I do not hear much bragging from any sales reps that bluebirds are landing in their lap.

Pareto’s Principle

Sales reps and suppliers freely quote the 80/20 Rule as if it is the First Law of Sales Physics. The 80/20 Sales Rule is one aspect of Pareto’s Principle: 20% of the customers will generate 80% of the revenue. If it is so universally accepted, why is it ignored when discussing exclusivity?

Suppliers give a single rep firm the exclusive right to sell its products in a territory, knowing full well that each sales rep will focus his or her time and energies on “The 20.” Truth be told, the rep-supplier harmony is frustrating at times and exclusivity is the source. Suppliers may feel entitled to manage a rep firm for its specific purpose and priorities, irrespective of the needs and priorities of the sales reps or the firm.

I make this declarative statement because I was one of those suppliers making those demands. I would not hesitate to call a rep owner and say, “I’m coming to your territory next week. I want to travel with your sales team for a couple of days.” I did not feel obligated to provide a reason for my visit because, truth be told, I was compelled to do it. I was trying to stay even with the other suppliers on the line card. Rep firms host suppliers in the territory on a turnstile system. There is always one coming to town as another is driven back to the airport. Every visitor can see how much of the rep’s time and attention is consumed during the visit. When the supplier is not in the reps’ territory he knows that another supplier is making the same demands and requiring the same attention from the reps.

While you decide if territorial exclusivity is really a White Elephant, I have another question for you to ponder. Does territorial exclusivity persist because reps and suppliers are reluctant to openly question its value, or lack thereof? That question might be the Elephant in the Room.

 

 

Vincent M. Cramer is the author of Cramer’s Cube and the founder of Winchester Consulting Group. He is the cofounder of OurSalesRep Inc, the creator of Virtual Direct Sales®. Vincent’s articles, interviews and editorials appeared in Chief Learning Officer, Talent Management, Workforce Performance Solutions, Diversity Business, Managing Diversity and the Boston Herald. Reprints are available at http://cramerscube.blogspot.com