Should Reps Expand Through Diversification?

A recent article by David suggesting that contractor-oriented distributors identify the “dual trade contractors” that they serve as a potential growth strategy and attending last week’s Electric Expo, put on by the Electrical Association of Philadelphia, that had about 2000 contractor attendees from the electrical and HVAC trades got me thinking about how electrical material is sold.

While we’d like to think that electrical distributors are the sole sellers of electrical material, aside from the DIY market and Grainger, the reality is that our manufacturers frequently sell through many other channels.

I recall reading that electrical distributors represent only about 60% of all electrical material sold. (Gene, CMG has data that shows electrical material sales by channel for 2021 … the 60% is correct, and it has been declining. (David))

Between others selling electrical material and others buying electrical material, it got me thinking.

Should Reps Offer “More”?

Manufacturers continue to grow their base of customers (distributors and end-users) beyond the base that they historically sold to. While the customers probably are similar, except perhaps the contractors, manufacturers now sell to more types of distributors than ever before. Why? Because they want to be where the customer is and others are asking to resell the manufacturer’s material. It is not just mergers and acquisitions creating this change, it is more others having access to customers, and perhaps being more profitable for the manufacturer.

As a former President in the Electrical Association of Philadelphia, I was able to work with many HVAC contractors and distributors who seldom considered purchasing from electrical distributors. At the request of an electrical distributor, I had a meeting with many of our member HVAC contractors and found the biggest reason seemed to be the electrical distributors merely lacked Freon, which was a necessary product for them

I had a similar meeting with a few HVAC distributors and found many were purchasing electrical supplies from electrical manufacturers through a separate rep salesforce.

30 years ago, our agency held discussions with a large lighting rep in the area. We discussed merging our companies. We had decided that our methods of selling and strategies long-term were incompatible. That was 30 years ago. Today, in Philadelphia, there is a firm that did merge with a lighting agency and has had success, and many other reps now represent lighting lines.

20 years ago, a number of reps came together for a series of meetings to discuss forming a national alliance for the security industry. The largest distributor for this industry had been sold and laid off some very good people, especially in Connecticut. The plan was to have national coverage with centralized inside sales. The reps involved would provide regional warehousing. A few large manufacturers of these products were agreeable. We met with a national electrical distributor and reviewed our plan. They too were ready to purchase through us.

Unfortunately, the two largest manufacturers who had agreed to support us entered into talks for their own merger, and with one already having a national rep agency, these plans also never materialized.

I served on a local utility marketing commission. I was able to serve as deregulation was influencing many decisions that were being made. A major one was that, in many geographies, it was less expensive to outsource their wiring and installations than to do the work in-house. Many of our closest electrical contractor allies had equipment, experience, and relationships to pursue this business successfully, and still do.

Today, talking to both reps and manufacturers, the opportunity for electrical distributors and representatives may never have been more appropriate for expansion than now.

Manufacturers I’ve been interviewing recently seemingly prefer operating with fewer reps and distributors. They want to work with companies that share their vision and can help them develop strategies and achieve goals that help them with all of their market opportunities.

Further, these manufacturers have shared that, when they are currently interviewing reps for open territories, they are specifically asking about the reps’ relationships with customers other than electrical distribution.

Reps interviewed have often related the area of growth most enjoyed the last few years in sales has been in this area

Supply Reps Selling More than Supplies

We see many supply representatives now selling lighting as more contractors are doing their own design/build projects. Generally mentioned was that distributors make more profit when they are able to “break” packages and often go to the supply reps with multiple manufacturer capabilities IF they have knowledgeable people selling quality manufacturers and these manufacturers can make their lives easier, while being more profitable for the distributor.

More supply reps are now calling on utilities, as manufacturers have given them the authority to do so. The relationships came about because the rep had customer or market insights. Reps shouldn’t expect a line, they need to earn it.

The reps have found that their attention to detail (follow through) and working with standards groups is not any more difficult than calling on engineers for other specification efforts, and their contractors are now doing more utility work and are more than happy to help the rep get to the right specification people.  Contractors often are asked to give a “cost per pole” to the utility and in working with people they have had positive experiences; they are able to also be more successful.  The utility people I spoke to have no issues working with manufacturer’s representatives and stated many are very helpful in finding answers quickly when necessary. The key is being responsive.

Today’s representatives are able to take on these additional responsibilities and add dedicated and knowledgeable associates in these fields to accelerate growth and attract more quality lines.  Few take on the responsibilities without adding these resources necessary to be successful. Manufacturers interviewed expect exactly this type of commitment, and reps that are pursuing them for these additional markets must include this in their proposals. And it can be a chicken and the egg scenario. Do you add a person first to show commitment and some success or wait to be approached by a line?

Certainly, distributors have gone into markets other than electrical as well. A few distributors I’ve interviewed admit that as they are generally different parts of their business, they have not done a good job in explaining these areas to manufacturers because often the management for these groups is not included in meetings with the manufacturers of their traditional markets.  Each admitted this was an error, and they will quickly be correcting.

We have also seen where manufacturers are choosing not to pursue electrical distribution, rather they are selling directly to the end customers. For all of their business or for different segments.

At the recent NECA conference, and at last week’s Electric Expo, there were a number of manufacturers that sold direct to contractors.

Opportunities to Expand Line Cards

Try this as an exercise – get a list of the manufacturers who exhibited at these conferences the past few years, and you will see companies that sell to larger industrial or OEM accounts as well as to our basic electrical contractors.

These companies are not just the very large manufacturers where a sale may run into large dollars, but electrical fittings and other products.  Is this an opportunity for electrical representatives? In the future, could / should representatives sell some products directly and others through distribution? Is this a growing segment of manufacturing?

Should Electrical Reps Sell / Service More Than Electrical Distributors?

As the channel changes due to consolidation, will the channels that an electrical manufacturer representative need to change? If manufacturers are a representative’s customers, and the customer wants to sell to multiple channels, should the rep support those channels (assuming they are being compensated?) Or are reps destined to be assigned to the electrical distribution industry which represents a declining percentage of electrical material sales?

The question becomes, is diversification to serve other channels, or to represent other products, a viable option for distributors and representatives or is growth limited to within the territory, to electrical products, or expanding into new geographies?

This period of opportunity again emphasizes the importance of communication. What does each of us need to be successful from each other? If we truly are the “three-legged stool,” it remains imperative to clearly define our needs and capabilities in order to gain trust. Given all of the changes in our industry, communicating is certainly challenging, but I hope all agree it is necessary. The distributor complaint I’ve heard most frequently is the lack of plan uniformity.  It changes as frequently as management groups, and many say the avenue of communication is more dependent on the representative than ever.