Minding our business

The key issues for business-to-business merchants tend to differ from those of business-to-consumer marketers, and they don’t always receive the attention they deserve. That’s why Multichannel Merchant decided to brave a Windy City winter and host a roundtable with executives at b-to-b companies based in the Chicago area. Barry Litwin of Block and Co., Jim Garlow of CDW Corp., Gretchen McIntyre of Cintas Corp., Susan Fischer of Newark InOne, and Rudy Picchietti of Specialty Stores Services met for lunch on a relatively mild January day (just before a snowstorm was to hit); the soup was hot and the discussion bold. Check out what they had to say about e-commerce, sales force management, merchandise commodization, and more on page 51.

MCM Let’s talk about what channels you’re in, which one came first, and how you got to where you are.

Rudy Picchietti Specialty Stores Services started with a basic ad in one magazine. We currently sell through our catalog as our primary source; 6% of our business is Internet, and that’s growing; and we have some key sales account people who do some travel. We have an inside sales team that handles our call volume, and we are trying to develop a robust outbound program.

Gretchen McIntyre Cintas had a sales team first. When our product line developed, we had to leave something behind for [customers]. It got too expensive to carry around samples, and that is when we developed our Source Book. Other catalogs came as we grew, but the Source Book was the first.

We tend to use the Website more for existing customers rather than for acquisition. We set up uniform programs, so that people who purchase for Wendy’s can buy only what is developed for Wendy’s, because they need to protect their brand.

Susan Fischer What percentage of your sales is that?

McIntyre It’s a relatively small percentage. Quite a few customers are not online. Lodging is a large portion of our business, and we found that while some of them are online, quite a few still use the phone and fax, because they don’t want their employees spending a large amount of time on the Internet. So we built the Internet to be a tool for them, but we find that the call center takes a majority of the orders.

Fischer I would say that from Newark InOne’s standpoint it’s very similar. But our sales organization has been structured that we have 42 branches across the country, and then a centralized call center in Cleveland, where we’ve been moving what we’d consider our smaller customers.

At the same time, for our federal government program, we are the only one in our business with a GSA [General Services Administration] contract, and we do a lot of federal trade shows and government-type things.

We’ve also segmented our customers because we are a small-quantity distributor. We sell to design engineers who are just starting to create a prototype. And we also sell to what you’d consider a repair and maintenance group. So we have two different customer sets with two different requirements. Engineers like to use the Web; the MRO [maintenance, repair, and operation] people like to use the catalog. They want it sectioned by brand; the engineers like it by commodity. So there’s a lot of ways we’re evolving our go-to-market strategies for existing customers as well as acquiring new customers.

Jim Garlow With CDW, I’d say that 25% of our sales are over the Web; that’s a growing area that is very, very strong for us. We have a very robust Website. You can go to the site and see if your order is in, you can see a picture of your account manager, you can track your order history, you can see where your shipments are. You can see pictures of your shipment to see the elements that are in it, which can be very important in IT because if you’re missing a component, you might be dead in the water for the meeting that you’ve got the next day. Our strongest customers are the multichannel purchasers, so we want them to talk to our account managers. We want them to contact us, and we will contact them, and we’re doing it over the Web.

We started as an inbound company, and we did the traditional; drop the catalogs and the phones would ring. About six years ago we started changing that and making outbound calls. We significantly increased the number of account managers to about 3,000. We’ve got about 300,000 customers, but core customers, there’s about 100,000 that we’ll call on a regular basis. And we can almost anticipate some of their needs because the account manager is the strongest bond we have with the customer. Some of them get invited to the weddings of their customers — that is how strong the bond is.

Barry Litwin Block and Co. is similar. It started 70 years ago with a catalog being constructed on the founder’s table with a bunch of innovative banking products that he had made. As his business got going, one of his biggest competitors started adding field salespeople. And not to feel like they were one up on him, he started adding field salespeople. That field sales team grew over time and started leveraging the catalog. As the businesses evolved, Block has maintained its niche as a supplier to the banking supplies industry by dealing with the smaller banks instead of the Chases and the Citibanks of the world.

What we’ve been doing as a strategy is driving down the cost to serve our market. Catalog has been a growth area for us; the Internet and extranet operations we’ve put a lot of money into. People use it as a tool, along with CRM, to create a better value-added relationship with the customer. Telesales are big, and that has helped us drive down the cost of sales in the marketplace.

McIntyre Our inside sales team has grown significantly over the past two years. To piggyback on an earlier comment, while we don’t necessarily realize actual sales on the Internet, our best customers have a sales partner, and then they have an internal contact, but they will also check on orders and inventory online. And while they may not place an order that way, they will follow up that way. We’ve really seen more value on the Internet in that respect, because it just closes the process. And we have quite a bit of product that is custom, so delivery times vary, and people always want to check up on that.

How do you deal with who gets credit for a sale when you have an outside sales force but their clients start buying online?

Fischer We have an interesting model. What we had done is set up most of our sales to what we call “assigned accounts,” who are pretty much in the 42 branches. Any sales that come from the Web as a result of e-sales or e-procurement are credited to those geographic territories, so they can tell their customers it’s okay to purchase from the Web, because we are giving commission to them.

What’s unique about our Cleveland call center is we have people who are part-time and are second-income earners. Their benefit packages are so strong that they are there just for the benefits. They are not highly motivated by commission. They are driven by incentives like airline tickets or a whole lot of rewards for doing a job well.

Garlow We have trained account managers who need to go through a lot of courses before they are allowed to get on the phone, because primary customers are going to be a company’s CIO or an IT manager. So we send them to this training, but what else we have is a team behind the team. IT is such a highly complex area that there are times a manager cannot answer a question and we have to do a deeper dive. [Members of the team behind the team] specialize in a specific area like telephony or networking. We credit both individuals involved.

In addition to that, we’ve just changed our model. We’ve always had “feet on the street” in the government sector, but we’ve changed it in the past year to have feet on the street in all states in the United States. So what we do is share credits for both. You’re a team in a sense — the telesales group and the outside salesmen. Even if the individual on the street closes the sale with no involvement of the telesales group, they both will get the credit. If the account manager closes it and the field salesman has nothing to do with it, they both get credit for it. They share it and work as a team with some synergy rather than fighting over the sale.

Picchietti We had a similar situation to what Jim described, where we have some key account reps who try to handle the larger-volume customers, and we’ve got assigned accounts for them, but they don’t necessarily take all the orders. We’re trying to develop the call center employees into account managers on an outbound relationship so that we can develop more relationships and incentivize them with commissions. We’re still in the test mode, and I’d say we are struggling with that.

McIntyre It ends up being an issue for us because we are commission based, and we have regions where everything rolls up to a general manager, and every channel rolls up to credit for them, and sometimes it’s up to them to determine. We have general rules that determine what would go into inside sales and what would go into field sales and what might not get any kind of outward sales effort.

We have customers who have a voluntary account. We’ll give them sales collateral and an Internet site, but no one will ever call them. They would call into our call center. And in that case, we have a national sales manager who would ultimately get credit. But we have pretty well defined rules of who gets what. There are some gray areas, but we leave that up to the manager to make that call.

Litwin We were pretty siloed as an organization in terms of account assignments, and it’s an issue I deal with literally every day. Our salespeople were very protective of their accounts. They didn’t want those orders that were being faxed to their homes going to the call centers. It created problems, especially when the we brought the extranet on, and [customers would] get one price online but they’d call the field sales rep to get their “special” price.

So what we did was change the sales model. We said telesales and extranet are going to be the base that handles 70% of our volume because of the value they can deliver in today’s world, especially with busy buyers. Let’s transition our field salespeople who are designed to expand that particular account and, by the way, we’re going to change the pay model, because you can’t apply the same compensation to the field people as the call center people because you’re going to naturally create conflict. So we moved to a salary-and-bonus situation for our field salespeople. We didn’t create a divide between their effort with key accounts and telesales people. They weren’t focused necessarily on each and every order. They looked at growth on a quarterly basis.

We rolled up their whole territories so that instead of having an $800,000 market, now they had a $2.5 million-$3 million market, and they looked at it differently. We realized there were benefits to growing our inside sales, and now our outside salespeople are more strategic.

McIntyre We also looked to our customers to give us some guidance as to how they want to be serviced. We have customers who want the Internet, but because we have sales to customers like the Ritz-Carlton, who need someone to go through the garments they have ordered. So based on the national contract we have, we’ll sit down and find out what the expectations are for how they want to be serviced.

Litwin With commodotized operational supply businesses today, if you look at the value of outside sales in terms of what it was 20 years ago, the technology and the demands of the buyers have changed so significantly that it’s hard to be able to identify the value [of an outside sales force] each day. You look at what you pay for that resource and their typical routes. For the supply business that is very challenging to cost-justify. Not that there’s no value in it, but I’m finding out that it’s becoming less and less popular in certain industries.

Picchietti I know that in our business, it has disadvantages because the lifetime spend of our customers is not that large. I’ve got tremendous attrition in the customer base. I agree totally with what Barry said: The value is hard to justify.

Garlow We’re doing the opposite. As I said, we’ve always had feet on the street in the government market, calling on the federal [buyers] and on the schools and the naval bases. That’s always added a lot of value, because a lot of [selling to the federal government] is in relationships.

On the commercial side, we never had feet on the street — it was kind of a nexus issue. But we recently switched over to where we are charging the taxes up front. And then we put feet on the street, but they call only on major accounts. So if you’re doing $1 million, the feet on the street may call on you. You’re not going to have someone who is just ordering ink-jet cartridges taken care of by a person on the street. What we’ve done is looked at the value or potential value of each account and set the ratio so they’re only going to get involved if we’re trying to get something major or trying to get the foot in the door.

Fischer What we’re able to do with those national accounts is truly know the account well enough to not only know who is purchasing but also who the influencers are. If you’re a call center that focuses a lot on inbound, typically you know exactly who the purchaser is, but you don’t necessarily have the insight as to who the specifiers and influencers are.

If you had to name one major challenge at your company, what would it be?

Picchietti My major challenge is offsetting the decline of [the video rental] industry [which accounts for much of Specialty’s business] with another industry and trying to grow the business and increase the loyalty or the lifetime value spend of our customer base. We sell primarily to independent retail storeowners, and they go in and out of business very quickly. So we always have to feed the customer file with new prospects.

We’re beginning to do things with our outbound telemarketing, trying to build relationships with the top of the file. Once we identify that we have the people with the ability to spend enough, we’re doing bounce-backs, loyalty type of things like discounts on second and third orders.

Fischer The electronics industry is facing what they call the RoHS [Restriction of Hazardous Substances] initiative. As of July any electronic device that is going into the European Union and into Asian countries cannot have more than a certain amount of lead and other substances. The whole industry is going through this transformational change. Certain suppliers are not ready or have not retooled their whole product line. They have way too much inventory, and they’re trying to dump this stuff.

On the other hand, you have a little company out of nowhere that is coming in and getting brand share, and it’s giving us the opportunity to grab customers at a rate that we never had before. It’s been requiring a lot of resources within our organization for about a year, and it’s going to continue to challenge us. But it’s also helped us strengthen our overall value proposition; we’ve had the very first advertising in the marketplace that has us RoHS ready.

McIntyre As we try to expand and to serve our customer better, we have different divisions that provide different services. Trying to manage the customer relationship with customers who rent uniforms, buy mats, buy other things from us — there’s a complexity in that which we’re really focusing on, and that’s to try and make sure that when people hear “Cintas,” they know of all the services that we offer.

Fischer We share that as well. There are certain customers that buy thousands of just one thing from us, but we sell 4.4 million products.

Garlow It’s always baffling. We hear people from time to time say, “I bought all my printers from you guys, I buy all my cartridges from you. If you ever start selling computers, please let me know.”

Litwin Each business has its own challenge. Ours right now is profitable growth. Reinventing the business, getting our goals. It comes with some pain along that way. You want to make sure you get profitable growth, and it comes both from our merchandising, being smart, finding out how we can gain a market edge in our proprietary products that we manufacture and offset lower margins in buying as opposed to manufacturing and take advantage of that blend. And improving our sales channel, that’s something we work on every day. Trying to be faster, better, and scaling the market at a lower cost.

We touched on it earlier, but let’s talk about e-procurement and setting up client-specific sites. How do you go about doing that?

Picchietti We do not really do it. We have features on our site for multistore environment or multibuyer authorization, but I wouldn’t say it was a major component.

Fischer To a customer, it’s ordering online no matter what you call it. Basically it’s a customer who can order what they want from their desktop and have a seamless experience.

We were one of the early adopters of e-procurement, and that has allowed us a very strong relationship with national accounts, multiple locations, hundreds of these things going on. We work with SAP, we work with Oracle, we work with all the third-party marketplaces. But to a customer, it’s not pure e-procurement vs. e-commerce. The fact is they have a good experience.

Garlow With our system, you can set up different rules and regulations on who can order what. So if you were McDonald’s and your design team in Chicago needs to order Macs from us, you can set up your system so that no one else can order Macs throughout the nation, because what are they going to use a Mac for in one of their local offices? You can put restrictions on order size or types of products that are ordered, individuals who can make an order. You can blanket that across the nation, and that is very valuable to the client.

Once you have that and once they are locked in, they will purchase everything through you. Your share of that customer is going to be so strong because the switching fee for them is going to be too high to do anything else. I think the Web itself offers more dynamics than what people are using it for today.

Another thing we use it for is an electronic way to send things out to the customers. We set up dashboards for each customer so that account managers can see the history of all the things they need. We can also send white papers out; we have five magazines we produce, and we can send articles out from there.

We also set it up where you purchase a server, and the system can alert you to a white paper about that server, or about a similar technology. Then an e-mail is sent to the account manager alerting him or her that the message has been sent. It’s a way to set up additional communications with that customer.

One thing we track is how we hit the customer. In the old days, we’d bombard them with catalogs. And the more catalogs we sent, the more business we’d receive. But we heard back from customers that they wanted targeted pieces. We know now that if a customer is loyal to IBM, they don’t want pieces about HP and to hear about how great HP is. So we try to hit them with what they want.

The Web offers a way to track it and electronically send them out, so that the marketing department is serving as an arm of the account manager and assisting marketing to that customer rather than working independently.

Litwin Our marketing team’s work on the collateral side, supporting the sales side, is very big. Instead of just mailing out a book and saying “Hey, we’re going to get something back from this,” it’s more targeted in terms of what accounts we need to get more information to.

Picchietti I’m just curious: Is anyone successful with prospect e-mail?

Garlow We stay away from a lot of that. The whole spam issue irritates our people very quickly. We do have opt-in newsletters. And if you opt in to find out about specials, then we will e-mail you on a regular basis. But other than that, we stay away from it.

Fischer In a b-to-b environment, the e-mail lists are extremely expensive; the quality of them is who-knows what with the number of people changing their e-mail addresses. The whole process brings problems to the b-to-b environment, so we do not do e-mail prospecting. But our focus is acquiring customer e-mails as quickly and accurately as possible, so then we have a chance to reengage with that customer for relevant type of things. That gives you a higher opportunity than if you just send them a catalog three or four times a year.

The only other thing we’ve found to be as effective is if you buy what they call the “boom box” ads in an industry’s e-newsletter. It drives people to our site, they sign up for a catalog. We’ve had a lot of success acquiring prospect through third-party industry-respected newsletters.

Litwin We’ve developed new business through effective search engine marketing through Google. It’s one of the best ways for us to capture new business. It makes prospects come to our site; they then opt in for more information, and we’re able to convert pretty regularly on it. We check our Web stats regularly, and we’re able to range from 2% to 5% new customer growth when we measure each month. And when we capture that e-mail address, we continue to target them.

Fischer Previously, when you placed an order with us through one of our branch offices, we wouldn’t ask for e-mail addresses for order confirmations. When I instituted that, the e-list grew a whole lot faster, and this way we go ahead and e-mail when the order is placed, confirmed, and shipped. Something as simple as updating order status was a huge way of building that database.

McIntyre Our customer service agents are now trained to ask for an e-mail address, so they are giving us a verbal opt-in.

Does anyone else do SEM?

Picchietti I have an outside company helping me to track that. We use both pay-per-click and paid placement. It helped us tremendously on optimizing our Website. I think the problem I have, though, is I don’t have a lot of tech-savvy customers. Retail storeowners are busy all day long, and at night I don’t think they go home to their computer.

Fischer I have people inside who do SEM, specifically with Google, Yahoo!, and MSN. We’ve also retained an outside consultant who understands how Google continues to crawl inside your sites in order to lift the organic results. So we’ve been successful with the paid placements, but now the focus is on how to architect your site so that the search engines have easy access to content to drive organic results.

Because your products are pretty much commodities, how are you differentiating yourself from the competition?

Garlow Ours is all in the account manager. We are definitely a commodity market. Having educated account managers who can walk customers through every part of the sale is definitely key. Also we have very robust, fast shipping, where you can place your order by 5 p.m. and have it at your company the next morning. That’s really that value-add we’re bringing to the table in our market.

Litwin We always look at product. You can have a definite advantage over your competition if you can get new product to market faster than they can. Even outside the product if you provide a total solution, like selling the pencil and offering the tape dispenser. That comes through the service side, making sure your call center has a first-time-right philosophy, and that is something that we’ve implemented.

Customization also created an edge for us. We do a lot of custom products, and if you ever bought a custom product before, you know it’s a pain in the neck. We’re redeveloped and reengineered things internally so that we can deliver custom products quickly, and we’ve actually used that as a competitive edge against our number-one competitor in the custom-bag area and have been able to pull market share because we could do it faster.

McIntyre We also do custom product, and we’ve revamped our processes as well to make sure we’re exceeding what our competitors are doing. And though we are commodity developers, we continually work with manufacturers to give us product exclusivity for a certain amount of time. The other thing we’re trying to do is position ourselves as a one-stop shop for all your needs, from document shredding to first aid to uniforms to mats.

Roundtable participants

Susan Fischer is senior vice president of marketing and e-commerce for Chicago-based electronic components distributor Newark InOne.

Jim Garlow is director of advertising and marketing operations for Vernon Hills, IL-based computer reseller CDW Corp.

Barry Litwin is vice president/general manager of Block and Co., a Wheeling, IL-based manufacturer/marketer of currency-related supplies.

Gretchen McIntyre is national marketing manager at Chicago-based uniform and corporate services provider Cintas Corp.

Rudy Picchietti is vice president of marketing for Des Plaines, IL-based Specialty Stores Services, which sells media packaging and retail supplies.

Multichannel Merchant senior writer Tim Parry and special projects manager Heather Retzlaff moderated.