Spiffs: Shaping a Selling Strategy for Manufacturers and their Distributors to Overcome Disruption

Most economic forecasters do their best to sound optimistic. There are many reasons for this, not the least of which is keeping people from being depressed.

Deloitte, who knows about these things, cautioned optimism around revenue growth. In their 2022 manufacturing industry outlook, they said that optimism should be “held in check by caution from ongoing risks.” Those risks included two main ones:

• Workforce shortages
• Supply chain instability

While they pointed out you need the now-famous word “agility” to operate in this age of turbulence, there was no single solution they focused on in order to help manufacturers sell more of their stuff.[1]

However, they did have five trends to watch for – trends which have been around for a while. They include:

1. Preparing for the future of work could be critical to resolving current talent scarcity
2. Manufacturers are remaking supply chains for advantages beyond the next disruption
3. Acceleration in digital technology adoption could bring operational efficiencies to scale
4. Rising threats are leading the industry to new levels of preparedness
5. Manufacturers are likely to bring more resources and rigor to advance sustainability

Each of these trends was expanded upon in the report which you can download for yourself.

In reviewing these trends, while there are a lot of nice suggestions in the discussions for each, nothing in the discussions point out exactly how to prevent the reduction of operational efficiency and margins.

In fact, these “trends” are really problems faced by ALL companies, not just manufacturers (i.e., take the first two…how do you prepare for the future of work when there are no workers or how ARE manufacturers remaking supply chains?)

The discussion on supply chains has some obvious observations, including:

• Root causes for extended US supply chain instability may include over reliance on low inventories, rationalization of suppliers, and hollowing out of domestic capability. (You’ll recall people used to rely on JIT (Just In Time) because they didn’t want to carry inventory, and when COVID hit, JIT became JIC (Just in Case) and they started carrying inventory again.
• Companies will further add or diversify suppliers in existing markets.
• Enhance data integration for supply-and-demand visibility and planning.
• The risks from not “connecting the dots” through available data can be significant.
• Reshoring of components or even final assemblies are likely to pick up steam.

We’ve been hearing such solutions for years. Indeed, this “dot” thing has been around a long time in business analysis. There is, however, a problem with dots: what if you can’t see them?

Economics 101

Many companies use The Bureau of Economic Analysis (BEA) which produces some of the most closely watched economic statistics that influence decisions of government officials, business people, and individuals. These statistics provide a comprehensive, up-to-date picture of the U.S. economy. Deloitte again put it nicely when they reviewed these stats in the latest report:

“If you’re looking toward economic data for clarity on the state of the US economy, rest assured you won’t find it there. Every day, observers change their stance, as one day’s news provides a different picture from the previous day’s news. And often, it seems like a never-ending stream of bad news – if it’s news about inflation (and the Fed’s reaction) one day, the next day’s headlines indicate a possible recession, followed by more bad news about inflation.[2]”

 

But in the next paragraph, they also stated with a touch of optimism: “And yet, for all the noise, the US economy doesn’t look that bad.”

Still, the number of manufacturing firms and manufacturing plants in the United States has fallen by roughly 25 percent since 1997, reflecting an increase in closures and a slowdown in start-ups.[3]

Manufacturers who utilize two-step distribution face obvious challenges, as do the retailers and stores they sell to and through.

Manufacturers, Retailers and Distributors

WSJ published, “Supermarket Discounts Are Harder to Find as Food Prices Rise” by Jaewon Kang on October 2, 2022. The subhead was interesting: “Promotions remain below pre-pandemic levels as grocers reduce circulars, take losses to put some items on sale.”

The piece explained that supermarket companies, already paying higher wholesale prices to keep their shelves stocked, “are left to spend more of their own money to advertise and support discount deals.”

Discounting has been around a very long time. Consumers – everyone in the path to purchase – gets used to “deals.” Therefore, when you stop deals, people look elsewhere for products.

One retailer mentioned in the WSJ piece, a general manager of food store in Chicago, said he hasn’t run discounts on specific items in nearly five months. He “recently turned down a 10% discount offered by a broth manufacturer, which he said came with a requirement that his store buy 1,200 units per flavor. Mr. Drosos said a 25-cent discount on the retail price wasn’t worth the shelf space commitment.”

But shelf space isn’t part of the current economic equation. Sales are. You have to redefine what “shelf space” means if you are going to succeed.

Shelf space was before COVID, and before the recession perhaps, the way stores measured what they did with manufacturers. But with supply chain and inflation and other variables, shelf space calculations don’t mean what they meant.

It’s not an “if you have it, they will come” world. It’s an “if they need, it they will come” world.

That’s why you are seeing retailers like Target, Macy’s and Walmart jammed up. They are struggling with extra inventory that people just don’t want. They blame miscalculating demand from customers, but truth be told, customers weren’t really demanding anything for a long time.

Want or Need?

At the HighPoint Market one year, I was working with one of the greatest salesmen I ever met: Don Tickle. At that particular time, Don was in his mid 70s, and I was about 15 years younger and couldn’t keep up with him. Full of energy, I remember walking into the multi-floor showrooms with him for the first time. Room after room of furniture, fabric, lighting, paintings, and all other manner of items. I was following Don into the hall, when he turned suddenly with a gleam in his eye and said, “See anything you need?” He smiled, nodded knowingly, and turned around and kept walking. Instantly, I knew what he was talking about. Instantly I knew HighPoint wasn’t about anything you need: it was all about want.

In Florida, right before Hurricane IAN struck, Costco opened its doors and had prepared pallet after stacked pallet of water right in the aisles where people walked in from the outside. Instead of a path three carts wide paths for people to walk through as they usually did, the six-foot high water stacks allowed only one cart going one way, and one cart going the other. In this case, the incoming people split into two paths all going the same way as the doors hadn’t opened yet. A Costco employee kept saying, “Keep walking, keep walking” while people grabbed water into their carts and “kept walking.”

They wanted and needed the water because a hurricane was coming. Even if they didn’t want or need it, they took water. Instead of stacking the water way in back of the store, Costco brought the water to them.

After 9.11, standing in line at the airport waiting to be cleared (remember the lines were enormous), I saw a vendor bemoaning his fate. He was selling coffee, but no one would take the risk of leaving the line to buy his coffee. He sat there, head in his hands, sad, probably cursing silently.

Yet, all he had to do was bring the coffee to the line. Change the pattern.

All the food retailer in Chicago had to do was buy the broth and put it on a truck in the parking lot, letting the truck become “shelf space.”

When disruption strikes, you have to think strategically and that means as Jim Mattis said in his book, “Until your head hurts.” And knowing the difference between wanting something and needing something is important to doing that. Sometimes wanting and needing the thing are the same. More often, they are not the same. But the one thing that EVERYONE needs is cash.

Enter the Spiff

MarketNet Associates Division of Interline Creative Group, Inc. has been running spiffs for manufacturers for at least 20 years. According to Bernedette Hewlett, the Director of Spiffs for the company, MarketNet got into the business when a manufacturer was struggling to “get the checks out by Christmas to the representatives.”

“It was an odd request, and we were just beginning our business, but my boss said we could write checks,” Hewlett explained. “The manufacturer had run a promotion with his sales representatives and couldn’t navigate his own accounting department who needs the paperwork (i.e., ss numbers, etc.) to report to the government. We took on that job, got the checks out, reported the 1099s to the government and built that exercise into the spiff business we run today.”

MarketNet now runs some of the most successful spiff/loyalty programs in the manufacturing business – spiffs which ran before, during and after COVID. AIM wanted to know more about this tactic, so in an exclusive interview with Hewlett, AIM learned why these manufacturers continue to utilize this “secret weapon” to penetrate in the disruptive environment we all face to sell more of their stuff.

 

AIM: So, from our conversations, you’ve said that some of your clients run these programs year after year after year. Do you know why they do that?

MARKETNET: That’s a good question. I remember when COVID hit and everything locked down. Nothing was moving. One of our largest spiff/loyalty clients called us and asked us to cancel the program. My boss asked me to arrange a conference call with them. During the call he explained that the basis of a spiff was to pay a reward only when a product is sold, and that if nothing is sold, nothing will be paid out. It’s the same thing with a coupon. You don’t get the discount until you redeem the coupon. He told them, “Look, your distributor customers are in a bad spot. Like you, they are going to be looking for ways to continue business. If you keep the program open, you give them an incentive as their partner. If you pull the program, where’s the incentive?” I’ll never forget that conversation, because the client kept the program open and our client had one of their best quarters in terms of products sold and spiffed. It was amazing! It was a true win-win with their customers.

AIM: That’s interesting for sure. So you’re saying despite the COVID lockdowns, your client was selling products?

MARKETNET: Yes. You know, one of the mistakes people made during COVID was stopping. I’m not saying you shouldn’t stay safe. I’m saying that you have to adapt, change or disappear. That’s evolution, isn’t it? You have to adjust. The spiff/loyalty programs we run were and are based on the distributor customers of our clients selling stuff, reporting back to us what they sold, and then receiving a spiff, a reward. It’s a loyalty program underneath it all, but it is data driven. It’s extremely flexible.

AIM: Can you tell me a little more about these programs that you run? They aren’t coupons, are they?

MARKETNET: Hardly. Besides, manufacturers would truly go broke if people redeemed all the coupons that they offer. Even in this digital age where people print their coupons to redeem them, if people did that for what the manufacturer is offering through the retailer, that would be death for the manufacturer. Spiff/loyalty programs are different. While you can run such programs aimed at the end user, rewarding the seller of the item – not the end user – is just as effective, if not more so, if the programs are run the right way.

AIM: Before I ask you to explain what you mean by the right way, can you tell me what is the participation rate of their people? I’m assuming these are sales people at distributors and other retailers that you reward in such programs.

MARKETNET: That’s proprietary information and it varies with the manufacturer. However, I can tell you that participation rate doesn’t matter much: it’s engagement that matters.

AIM: What do you mean by engagement?

MARKETNET: Well, loyalty. Take coupons once again. Do you know how big digital couponing has become? I’ve seen statistics saying that 90% of consumers used digital coupons. But if everyone really used all the available coupons, the manufacturers would go broke like I said. Loyalty is different. Loyalty is kind of a love affair with a brand. And while there is a reward involved, that reward generates loyalty – and can you name something better for a manufacturer than customer loyalty? This affinity that people develop for a brand has to be, of course, based on a sound product, a quality product. But who do you know that doesn’t talk about their product’s quality? So, if quality is equal, where is the differentiation? It’s in building that bond between the seller and manufacturer. Like I said, a kind of love affair.

AIM: Can you give us an idea of participation at all?

MARKETNET: We’ve had over 5,000 individuals participate in our programs in the past couple of years — many more thousands over the years. But compared to all the AVAILABLE people who CAN participate, it’s only a small fraction. And that is OK, because those that participate are the engaged ones – the ones we want.

AIM: Do you know why that is?

MARKETNET: Lots of reasons. But like I said, participation isn’t important. Engagement is. The people who participate are engaged. These people earn rewards between $5 to $10,000 or more depending on the products and manufacturers they represent and sell. The value of those products sold into the marketplace is hundreds of millions of dollars compared to what is paid out as the reward. I assure you, the manufacturers would not be rewarding salespeople with that kind of money unless the ROI was proving itself out.

AIM: So, like I asked, can you tell me a little bit more about the programs you run and how they are different from others?

MARKETNET: Programs are based completely on what clients want to reward. Our client determines the products they want to reward, how much they want to pay out, and MarketNet does the rest. We administrate the program from start to finish. We provide complete transparency – where the money goes, who gets it, how much, and most importantly, the products that earn the reward.

AIM: Why do you say that the products that earn the reward is the most important? I would think that how much the distributor earns is more important.

MARKETNET: That’s where our programs are different than a typical loyalty/spiff program. Most programs just dish out money and the manufacturer basically gives up control of how much is being paid out. We were different from the beginning, we aren’t about just handing out rewards. We had one client that was handing out money like candy when he found us. No accountability, just paying money, which is horrible for the manufacturer but great for the person collecting the reward. It took us one quarter to straighten that out and they have been with us ever since. No, the way we run the program, accountability is front and center. That’s because the money paid out is secondary to the main objective of the program.

AIM: And what’s that?

MARKETNET: Data.

AIM: You alluded to that before. What kind of data are you talking about?

MARKETNET: Well, the useful kind. We not only know who gets a reward, we know what it was for, where that product was installed, the price it was sold for. It’s about that kind of data. It’s always been about the data.

AIM: Can you give me an example of what you mean?

MARKETNET: One of our clients was trying to do research on their product. They wanted to find out what consumers thought about it. At a client meeting they were discussing where they could purchase a list of consumers to find out the opinions. I said, “Why don’t you tap your database of consumers?” They looked questioningly at me. They totally overlooked the fact that since they had been running their program for over seven years, they had over data on 25,000 consumers who had installed their product in their homes: their names, addresses, emails, everything you need for such research. We gathered that “data” from the way we run our spiff/loyalty programs. With a typical spiff program, you know nothing like this. Data has always been the mainstay of the way we handle these programs.

AIM: Did you ever have a program that failed?

MARKETNET: Of course. Who doesn’t have failures?

AIM: Can you comment on that?

MARKETNET: Programs fail for a lot of reasons. A manufacturer’s reps not supporting it is probably the main reason. In the early years, one of our clients wanted the reps to deliver the rewards to their customers. My boss refused. The client didn’t understand how a vendor could refuse to provide a service, but my boss explained. “You can’t beat me,” he said. “Your rep has 200 places to be in his state where he has to show up with the check. I have UPS.” The client insisted on having the rep deliver the reward, so we agreed. That lasted two weeks and the client called us to revert to delivering rewards UPS. Our client’s customers depend on these rewards. We have evidence that during tough times, spiff cash rewards have brought them through troubled times, helping to build loyalty.

AIM: How do you know that?

MARKETNET: We do ongoing research. We talk to their customers. We become an extension of our clients and honor our obligation to do the right thing. We have a database of over 10,000 verbatim comments about our programs from our client’s customers that prove it. It’s one of the reasons these programs, the way we run them, work. I remember one writing that without this check, they wouldn’t be able to meet their mortgage that month. The check was for $200. We hear from our client’s customers because we pay attention to what they tell us. Anyone with a complaint is called immediately and the problem worked out.

AIM: I would imagine you have a lot of fraud in your programs, or attempted fraud?

MARKETNET: Hardly. In the beginning of any program, you might get some people trying to cash a check and then say they never got it, or not cash it and say it was lost, and then cash both. But we eliminate that when it happens and that stops future efforts. Word gets around. It’s not an accident that the comments we receive in our feedback mechanism is that we run the best spiff loyalty programs in the business. Honesty pays off. People are basically honest is the premise we start with. It works.

AIM: Don’t people try to skirt around the system by reporting products that they don’t really sell?

MARKETNET: Well, not really.

AIM: How’s that?

MARKETNET: It’s hard to do that if you provide the invoice that documents what you sold.

AIM: What? You actually get the invoice of the sale?

MARKETNET: Of course. That’s part of our differentiation from other companies that do spiffs and reward programs. It’s not like we’re sophisticated retailers with electronic transactions. This is a different ballgame. These are what they call “considered purchases.” Often the product can cost hundreds or even thousands of dollars, not $19.95. But that’s what makes our programs so valuable to our clients. The data.

AIM: So, if a manufacturer was interested in such programs, does he have to be in a particular market?

MARKETNET: Not really. Electrical, plumbing, HVAC, any of the professions work as long as manufacturers are using distributors. Two step distribution is the underlying process for all the programs we administrate.

AIM: How does a manufacturer get in touch with you?

MARKETNET: Our website has all the details: www.marketnetdiv.com. Our phone number is 847.358.6884 or I can be emailed directly: bernie@marketnetdiv.com

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[1] From something called The Hamilton Project, a paper called “Tracking the Robust Recovery in the Business Sector Since 2020,” by Mitchell Barnes and Wendy Edelberg noted that newly released Business Employment Dynamics (BED) data from the Bureau of Labor Statistics (BLS), nearly 450,000 more business establishments were open for operation at the end of 2021 than at the end of 2019 – double the number of businesses created on net from the end of 2017 through 2019. On the other hand, WSJ and other sources have cited that as of April 2021, studies suggest that around 200,000 US establishments have had to permanently close their doors because of the pandemic. If all this is true, who are those two risks still in play? It actually gets more confusing. Did you know there is something now called “long Covid?” People who have been infected with COVID now are grouped into long-Covid segments. For some reason, analysts love adjectives. But the fact is, there aren’t as many people working these days for a myriad of reasons. What is the root cause of “not working?” That’s a subject for another day.

[2] United States Economic Forecast, The Q3 2022 forecast examines the state of the US economy amid high inflation and concerns about a probable recession. Daniel Bachman

[3]  Delivering the US manufacturing renaissance, August 29, 2022, from McKinsey.