Historically, customers relied on sales reps to provide information and expertise about the products that the customer needed to purchase. As such, sales reps in a certain sense were in the information delivery business. The typical sales rep spent much of their time carrying product information from the company to the customer. Sales calls involved showing the latest brochure, delivering a product presentation, and explaining the benefits to the customer. This behavior was of value to the customer because the sales rep was presenting information that the customer needed in order to make a buying decision.
Over time, two factors led to a demand for a new class of salespeople – ones who worked for independent companies who produced no products themselves but specialized in selling other company’s products. These became an alternative channel that vendors or suppliers could use to further penetrate their markets.
These independent sales companies provided either:
- A less expensive way to reach a specific geographic market or a market dedicated to a specific class of products. They created this “distribution” business by serving the products of multiple vendors (usually non-competitive) at a greatly reduced cost to each service supplier or manufacturer.
- Specialized technical sales “experts” who could include a supplier’s products in a more sophisticated solution that required multiple products (or services) in a specially designed application for a specific customer. They became known as value added resellers or VARs.
The Internet, however, has now made the historical sales methodology obsolete and put both substantial additional pressure and opportunity on both distributors and VARs. Using the Internet, customers can get product information at the same time as the sales rep, not just about the sales rep’s offerings, but the offerings of all of the rep’s competitors. In this environment, product brochures and elaborate product pitches are meaningless because the customer already knows what to buy and can locate multiple places to buy it. As a result, the importance of the sales rep to the customer as a deliverer of information has waned, almost to the point of non-existence.
Similarly, the information on the Internet has vastly increased the ability of customers to negotiate their own price. In the past, the simple mechanics of gathering data on competitive products (and comparing relative prices) was a formidable job, requiring many man-hours on the part of the customer. Such work was productive only when the customer was comparing products that were nearly identical, and where the difference in price was large enough to justify the effort required to uncover that difference.
For example, a company purchasing a complicated computer system could easily justify writing an RFP, reading multiple vendor proposals, and finally selecting the right vendor because the difference in price (or, more precisely, total cost of ownership) between the two competing systems was likely to be far greater than the expense of the complex buying process.
However, in cases where the variation between the prices of two competing products was relatively small, customers were naturally reluctant to go through such an expensive process. Instead, they’d depend upon local sales reps to provide basic product information and trust them to provide the best price. Often these relationships were “locked down” with the purchasing department, thereby guaranteeing that certain amount of buying behavior would take place going forward.
The net effect of such relationship was to leave the power of setting prices to the selling firm and (by extension) the sales rep who represented the firm. As long as the price was not egregiously higher than what else was available, the customer would continue to buy from the “approved vendor” at the price set by that vendor.
Today, however, customers can instantaneously compare products online, both in terms of functionality and price. Suddenly, it’s become relatively inexpensive for customers to search for the lowest prices for many goods and services that they might require. This ability to easily and quickly find alternatives tends to drive prices downward because, all other things being equal, the customer can now purchase the lower-priced product without carrying a heavy financial burden of researching alternatives.
Customers, and the processes they use to buy, have changed in other ways as well. Opportunities that were once within the purview of one, or perhaps two, decision-makers may now involve an entire committee. Complex sales that previously could have moved forward on the basis of general consensus among the buyer’s management team are today often subjected to increased levels of scrutiny and formal approval.