Marketing new products with industrial distributors

Marketing New Products With Industrial Distributors Nicholas

Nickolaus

Whenever we are asked how Pall launches new technical component products through distributors, we aneven though we’ve been at it for 44 swer, “slowly”: years. As straightforward as it may seem now, we spent our first 30 years experimenting, learning, and building a distribution philosophy and good practices that have not betrayed us. Sometimes we forget and betray thembut we always pay the consequences. BRIEF HISTORY

OF PALL

At over $500 million in sales, Pall is the largest, most successful, and most global company in the specialized niche of technical solutions we call “fluid clarification.” Pall expect 1990 to be the nineteenth consecutive year of growth in earnings and revenues. In the past 18 years, Pall grew at a compounded rate of 18% in revenues and 35% in earnings. The compounded rate of total return to our shareholders over the past 20 years was 24%. Pall employs about 6,600 people worldwide, and is publicly owned and traded on the American Stock Exchange.

Address correspondence to Nicholas Nickolaus, Senior Vice President, Corporation, 2200 Northern Boulevard, East Hills, NY 11548.

Industrial Marketing Management 19, 287-299 (1990) 0 Elsevier Science Publishing Co., Inc., 1990

655 Avenue of the Americas,

New York, NY 10010

Pall

MAJOR PRODUCTS

AND MARKETS

Pall Corporation is the world leader in the design, production, and marketing of fine filters and other fluid clarification devices, including air cleaners and oil purifiers. Pall products are used to remove solid, liquid, or gaseous contaminants from liquids and gases in a wide variety of applications. Pall Corporation has offices throughout the world with manufacturing facilities in the United States, Puerto Rico, Canada, England, West Germany, and Japan. The company was organized in 1946 to market Dr. David B. Pall’s invention of porous stainless steel to existing filter companies. It was the expectation that they would buy this material to produce filters for chemical process use. They did not buy it-fortunately, in retrospect-and that led Pall to integrate forward into laboratory devices and then into the process filter business. Today, the company’s business is defined by three broad markets, health care, aeropower, and fluid processing. In the health care industry, Pall products are used to protect against contamination of ingested or administered fluids; in diagnosis of human, animal, and plant disease; for the production of sterile, contaminant-free pharmaceuticals and biologicals; and for producing yeast and

287 0019-8501/90/$3.50

No project gets into R&D without a marketing brief bacteria-free water, beverages, and food products. In the aeropower segment, Pall products are used in large commercial and military fixed wing aircraft, helicopters, and naval vessels, as well as on heavy industrial and mobile equipment. The fluid processing segment includes customers who process fluids to produce everything from microelectronic components, magnetic tape, photographic film, plastic fiber, paint, chemicals, petrochemicals, gas and oil, and electric power.

a result, more than 95% of our new products are successfully merchandised. Aside from the commercial benefits of new product performance, there is a serendipitous benefit for our scientists as well. No one wants to work on a project 2, 3, or even 4 years without its invention contributing to the company’s growth. Our scientists know that if they succeed, our sales and marketing people will succeed too. This is a powerful stimulant for research!

IMPORTANCE

THE MARKETING

OF NEW PRODUCTS

TO PALL

Pall’s strategy is to focus on internally generated growth through the introduction of new products, to develop new markets, and to achieve greater penetration of existing markets. Our long-term goal is to grow at an annual rate of 15% to 20% compounded. In the last 2 years, we acquired one $5 million company and sold one $25 million company, for a net acquisition of zero. After almost 40 years in this business, Pall has concluded that the long-term internal generation of consistent growth is not achievable without new product introductions. Consequently, at Pall, we treat internally generated growth very seriously and try to avoid the bureaucratic obstacles to internal growth inherent in larger companies. Whenever we are asked how long an R&D project takes at Pall, we answer, “longer.” The reason is that it’s very difficult for a scientist to make such projections when working on an invention where no one has been before. Similarly, we do not budget R&D projects because the cost of development is unpredictable. We do make certain, however, that all R&D projects are thoroughly planned, studied, and meet our sales and prolit requirements be fore they are allowed to become projects. As

NICHOLAS NICKOLAUS is Senior Vice President of the Pall Corporation, East Hills, New York.

288

BRIEF

One way we achieve a high level of successful new product performance is with what we call the “marketing brief.” While we are a highly technical company introducing new products every year for many years, we are also a market-driven company. No project gets into R&D without the benefit of a marketing brief, which is a precise description of the product need, the target market it will serve, its application, its performance criteria, what it can cost, and expected sales in the first 12, 24, and 36 months, based on a “demand curve” analysis. The brief is always prepared by a senior marketing person and approved by the president of that sales company before it comes to me for approval, and before it goes to the CEO. Once it has reached this stage, it almost always becomes an R&D project, unless a vice president of research considers the project impossible to resolve. In this case, marketing will either downgrade the product requirements and projected sales or shelve the project. In preparing the brief, marketing has carefully measured the need, and most importantly, the benefit to the customer: studying the competition; reviewing the concept with counterparts in Europe and Japan (so that we have a global commitment); and determining the world potential, or more importantly, what we call the “potentiality factor” (which quantitatively measures the reality of this potential for Pall). One of the most important requirements in the brief is a short, credible explanation of why this new product will be commercially viable. It is our policy to increase our projections by the amounts

in the brief, once the new product is available, and to hold the president of the sales company responsible for the projected growth. This procedure is so much a part of our philosophy now, that our R&D people won’t start a project unless they have a marketing brief-it just can’t be circumvented! IMPORTANCE

OF DISTRIBUTORS

TO PALL

Pall has used distributors since its inception in 1946, 44 years ago. Many of the original distributors arc still with us. We believe no one surpasses us in understanding how to sell technical components globally through industrial distribution because we put so much of our energy and resources into making industrial distribution succeed. Approximately 60%, or $300 million, of our sales are through exclusive distributors, with the balance coming from direct sales in those countries where we cannot find acceptable distribution. We are constantly asked why do we, a manufacturer of technical components use industrial distributors rather than selling direct. The answer is not either of the two most common reasons. First, the financial resources for direct selling are not available-we could replace every distributor without a very significant increase in outside sales expense. Second, “lack of market knowledge.”

preneurial management we obtain with our distributor network, which is so difficult to find and keep. Also, consider how much easier the management problem is when you have skilled, very profit-motivated, and experienced sales leaders as principals directing the activities of many sales people in a territory with local inventory. All that the distributor knows and values exists in that geography and in the assigned market. The local distributor simply does not pick up and move, as the individual employee often does. Our technically complex field of filtration is as much an art as it is a science, and low turnover of experienced people is extremely desirable.

PALL DISTRIBUTOR AND POLICIES

UNDERSTANDING

We are very open and straightforward with our distributors. As an example, in 1966, we signed a two-page contract with our distributor in Japan which neither one of us ever saw a need to change, in spite of growth, introduction of new products, and expansion to new markets. The contract existed until the distributor principal passed away, almost 20 years later. I don’t mean to say that we have two-page contracts-our legal people usually don’t allow that-but I want to illustrate the kind of

Protect a distributor’s investments We are well informed about all our major markets, although as an expanding company with a proliferation of new products, we sometimes come across new market opportunities with which we have less than acceptable familiarity. It is Pall’s policy to sell with distributors who meet the following criteria: they are entrepreneurial; they have a sales staff that is technically trainable; they can provide adequate coverage in the territory; and they are presently making their living in the markets we seek to penetrate. We select distributors for whom we will be, or can shortly become, their highest income producer, and we assign them exclusive territories and markets. We see our chief benefit to be the tremendous entre-

quid-pro-quo relationship we try to develop with every distributor. We have found that our best distributors are honest, loyal, and enthusiastic about being Pall distributors. They know they have exclusive rights and get excellent support, and that we share the same growth goal of 15% to 20% per year. We always tell our distributor principals that they need not fear being replaced by direct sales because their commissions have grown too high. We insist on growth oriented distributors who will invest profits and expand sales coverage every year. A distributor can only do this if its investments are protected from the threat of being taken arbitrarily away. It would be the same as you investing in areas where your assets aren’t protected against seizure or nationalization. 289

All distributors report each user sale SELECTING DISTRIBUTORS MARKET SEGMENTS

TO SERVE

Probably the most significant criterion for Pall’s success with industrial distribution is to select people whose major income is derived from the markets we serve. Since our relationship with our distributors is so strong and so personal, we have hesitated to bypass them whenever we endeavored to penetrate new markets, as we thought they would be deprived of a financial opportunity. However, in many cases, they did not cover their expenses, their traditional business suffered, and Pall failed to exploit the opportunity with them. We believe we can never exploit all of our new products and new market opportunities unless we create the optimum distribution that is very focused by products and markets. Any failure to effectively match products and distributors with the target markets will undoubtedly cause us to fall below our longterm goal of 15% to 20% growth per year. It is our policy to also remain focused in the area of technology known as fluid clarification, provided that the yearly potential can sustain our annual growth goals. Every year we ask our senior people, who are close to our markets, to estimate the total market potential for their business. We have been doing this for the past 20 years. We recognize that the number derived is a soft number, not achievable by us, because we define this potential as the total dollars of business we could obtain if we sold 100% of all possible filter applications at our premium prices. However, as long as this number is at least five to ten times greater than our current level of business, we need not seek opportunities outside of our area of expertise. Our latest annual report quotes the world potential at $5.8 billion; more than ten times our current sales. The point of this is to underline the vastness of the opportunity, not only in size, but in number of markets and products, and consequently the impact of selective distribution (also called parallel distribution), on penetrating more and more of this potential. The other important lesson we have learned about distribution is that, since we focus our products for every market, our distribution should always maintain sufficient inventory and be trained to sell all of these products. 290

USER SALES REPORTS

DRIVE PLANS

Our deep relationship with distributors can survive only if we use exclusive distribution. Our demands are so persistent and our support so extensive, we would not get the response required if we were to weaken the relationship using multiple distribution within a market. Our bonds with distributors are so strong that every month they send us an unpriced copy of every one of their customer invoices, so that we can track and trend sales by distributor, salesperson, customer, market, and product. In return, the distributor receives a report-which we call the Sales Action Plan-specifically for that distributor territory. Every Pall sales company is driven by Sales Action Plans. We track sales to every customer against our projections and react promptly and accordingly to any falloffs.

TRAINING

FOR DISTRIBUTORS

AND USERS

To succeed as the price leader, Pall recognizes that the informed customer who understands the benefits and economic value of our filters is indispensable, and only well trained distributors can succeed in promoting this understanding to the customer. Our training programs are very formal, lasting for as long as 3 weeks. They are held in classrooms at the Pall conference centers in Glen Cove, New York; Portsmouth, England; and Tokyo, Japan. The distributor management training programs are administrated by professionals with teaching backgrounds in academia. The technical and product sessions are delivered by our most experienced engineering, sales, and marketing managers. Attendees are given pre-reading material for which they must show acceptable aptitude before they can attend a training program. Examinations and problem solving are daily exercises. The technical sessions deal almost entirely with product and application information. While we do have separate salesmanship training programs, we expect our distributor principals either to provide this or to select experienced sales candidates. Our vice president of distribution reviews the performance of

all trainees with distributor principals and makes confidential recommendations regarding those salespeople we believe will not be able to meet our performance goals. The intense technical training and the amount of information we provide at these sessions cannot be absorbed through classroom training alone, even though most attendees have a scientific or engineering background. To mitigate this, we provide each trainee with a detailed sales manual which includes all the information needed for day-to-day account management and sales calls. In addition, trainees receive complete marketing manuals that clearly describe all the filter applications and technical information needed for each market: for example, the pharmaceutical, electronic, and food and beverage markets, and so on. Furthermore, as reinforcement, each trainee receives a mini Sales Action Plan that provides historical sales information about a prescribed list of customers in a designated area. The trainee is instructed to set up sales calls with each account within the next 8 weeks, to which the trainee is accompanied by a Pall regional sales specialist. As Aristotle said, “You learn to play the flute by playing the flute’ ’ . In about a year, we invite these distributor salespeople back for an advanced training session, which lasts 3 to 5 days. Here, the emphasis is different. There is less of a teacher/student relationship as in the first session, and we expect more participation from the salespeople in sharing their experiences with us and others. We also use this opportunity to update them about new marketing programs, to introduce new products and applications, to review product needs, and to respond to competitive threats. In all of our training sessions we emphasize the corporate credo defined by the acronym EESES-Pall eases the way for its customers with value selling. Our products provide the customer with: Ease of use, that is, customers do not require long training periods to become proficient in the use of Pall products nor does it take much time to put our products into use; Economy or value in use, while Pall is the price leader, the total cost of of using our filters is more economical than using competitive products and the economic benefits of our products most often are far greater than the actual filter cost; Safety, our products are designed to be safe for use in handling or when in contact with fluids; Efficacy, Pall filters are efficient and reliable, they perform exactly as we claim, and they do this consistently; Service, we do all that we can to service the customer. We succeed because we solve problems, provide benefits, and serve needs.

We have two other training techniques, but these are used sporadically. One is called the Zone Training Session, where we gather the distributors surrounding a major city in a central hotel for a 1 or 2 day meeting. These multiple sessions are used with very specific and limited agendas. The advantage is that distributors can be gathered on very short notice. Since the sessions have to be repeated to cover the entire distribution, Zone Training places a heavy burden on our sales and marketing people and consumes a great deal of our time. The second technique is a training session in the distributor’s principal office with the entire sales force. These are usually 1 day sessions. Most of the time, these are simply refresher sessions, but they can be effective because they focus on opportunities in a specific territory. I think less highly of these two kinds of training sessions when compared to the formalized training conducted at our conference center, because they lack formality and the professional tone created in a classroom setting. Since they are held off-site, we do not have access to all the facilities we have at the conference center and the distributors don’t have access to all of our people. Despite these drawbacks, all of our training programs are tailored to each of our markets and for the express purpose of developing a network of highly trained, technically competent salespeople. The knowledgeable salesperson exudes confidence which begets customers’ trust and loyalty.

IMPORTANCE

OF TECHNICAL

WORKSHOPS

It is Pall’s policy to extend the state of the art in fluid clarification. One way we express this is with technical seminars, as well as technical presentations before trade associations, and through written articles for publication in scientific trade journals. This kind of publicity is the responsibility of marketing and of our Scientific and Laboratory Services group, known to us as SLS. We discourage such presentations by our salespeople because we want them to spend as much of their time as possible in front of customers-selling. Likewise, we discourage our R&D people from such activity as we want them to spend as much of their time as they can inventing, and we simply want to avoid any disclosure they may make which could jeopardize our patent positions. Our SLS group does not invent; R&D does that. The SLS group is composed of PhDs and highly skilled technicians. They are provided with very sophisticated scientific equipment (some of it proprietary), for use in 291

studying contamination control problems in every one of our markets. The group is divided by market, so they can specialize. Not only do they become very knowledgeable about the applications in these markets, but they get to know the important scientists and major customers on a first name basis. The SLS group has three functions: (1) to solve contamination control problems for our customers; (2) to interface with marketing and R&D so there is no confusion about marketing’s definition of a new product; and (3) to provide R&D with the analytical laboratory facilities they require to test prototypes to confirm their performance and reliability. We encourage our SLS people to aspire to become “fellows,” that is, to become recognized publicly as authorities in their fields, to write papers, deliver seminars, and actively participate in trade association committees. When presenting seminars, we refrain from anything commercial and try just to educate the customer. The program is very professional. A printed agenda and CVs of the speakers are sent out beforehand to invited attendees, and copies of the presentations are distributed at the end of the seminars. The seminars can be regional, where many customers are invited, or they can be for the single customer, where many employees are invited. Each serves its purpose. The first allows you to get a message to many people quickly; the second is usually more rewarding because the attendees are more likely to engage the speaker in some dialog. We deem the technical seminar so important that every marketing manager at Pall is required to develop and present one. Before a manager presents a seminar outside the company, a full presentation is made to our training staff, and final approval is given only after the president of the sales group personally reviews and approves the seminar. If necessary, the speaker attends our presentation skills course, which is taught by our training department. Once this protocol is completed, marketing managers exchange their seminars with their Pall counterparts in Europe and Japan. All are expected to have gone through the same acceptance procedure and to continually update their presentations. Performance is measured by audience comments collected at the end of each presentation. These written indicators are distributed to the management of the sales company. POLICY ON CARRYING COMPLEMENTARY LINES We have a pragmatic carrying complementary 292

policy toward Pall distributors lines, since these help support

the cost of a sales call; they give the salesperson more than one reason to call on the account, and very likely, they are dealing with the same engineer, scientist, technician, or maintenance person. Therefore, the Pall distributor may be selling a filter, a pump, heat exchanger, valve, control instrument, or the like. Most of our distributors operate in this manner because it also provides the most security, either against the supplier taking the line from them, or from a decline in sales of a product, for whatever reason. In these situations, we encourage distributors to carry complementary lines. However, we do have some distributors that are exclusively devoted to the Pall line, and we try to promote this in the right circumstances. It is important that the potential for our filters in the distributor’s territory is large enough to support their dedicated organization and that the economy is growing and technologically advancing. Most important, however, is that the distributor principal has unbounded enthusiasm for the Pall line and trust in Pall management. We will assume that the distributor has the other prerequisites, including knowledge of the market, financial stability, entrepreneurial energy, and honesty. Our experience with the totally dedicated distributor has always been the same and has always been successful. Usually the new multi-line distributor will grow faster in the first and perhaps the second year, than the totally dedicated Pall distributor. This is because the multi-line distributor can more easily sell to present customers, since the easiest sale to make is to satisfied users. But shortly thereafter, the “Pall” distributor begins to gain and exceed these sales. A consistent, focused effort to sell begins to pay dividends as customers realize that this dedicated distributor is more knowledgeable, more reliable, and more service oriented. The more dedicated distributor has to be, since this is the only product line he or she represents. We also find that the more dedicated distributor is more alert to sales opportunities, spends more time in direct communication with our salespeople, is more adaptive to selling to new customers and to exploiting new product introductions, is able to optimize inventory, consistently seeks more information about our technology, and is more honest about market conditions, the competition, and pricing. The “devoted or more dedicated distributor” is never diverted from our business because of complementary new product lines or the loss of old ones. While we prefer the devoted or dedicated Pall line distributor, it isn’t easy to achieve. The greatest obstacle is fear-fear by that distributor principal that a relationship with Pall can’t be

secure. For this reason, we do not insist on such an arrangement. We strive for it by developing strong, personal ties with distributors, by supporting their sales staff and by providing sales opportunities that generate such high profits that the distributor will naturally encourage and promote more Pall activity. The single feature that makes the devoted distributor a reality is a certain charisma and genuine affection and trust that become evident after the distributor and Pall management have gotten to know each other. When we can inspire them and they become enthusiastic about us, the possibility to conclude this kind of arrangement exists.

tation that any existing competitive filter lines will be dropped and none will be permitted in the future.

EVALUATING

DlSTFlIBUTORS

It is important for distributors to feel that they are constantly evaluated. We address this formally through a vice president of distribution or a senior sales officernot marketing. Since we are in daily contact with our distributors, we pretty much know the reasons for any shortfall in performance and can propose acceptable solutions. We measure several indicators of performance

Prepare a proforma P&L with each distributor POLICIES

ON CARRYING

COMPETITIVE

LINES

We do not permit our distributors to carry competitive lines. Our demands and support of our distributors are so formidable, that we cannot tolerate such a situation. We want our distributors to concentrate on selling our filters and no others. A distributor cannot be given the choice of not selling our product, at the first sign of customer resistance, and simply offer a competitive filter. We don’t want our training to assist and support a competitive line. We develop distributor relationships built on mutual trust and loyalty. A competitive line would erode that. Our reputation is such that if you can’t succeed with the Pall line, you can’t with any other competitive filter line. We always strive to maintain the proper business relationship with our distributors-we don’t try to manage their business-we share our knowledge and our strategies with them. We meet with them every year to hear how we can make it easier for them to do more business. The Chairman of our Board, our Chief Executive Officer, and our senior management, including manufacturing and engineering, attend these sessions. This kind of intimacy can never be generated knowing there are competitors in your midst. Whenever we meet with potential new distributors, they know right away that any further negotiations are predicted on the expec-

to alert us to a deteriorating distributor situation. First, we measure sales amount versus forecast. This is a mutually derived number agreed to just before the start of the next fiscal year, and is tracked on a monthly basis. Any declining trend, for example, 3 consecutive months, merits attention of the president and vice president of sales of the company. Second, we estimate the amount of time each distributor salesperson spends on Pall filters. We have determined over the years what amount of sales can be reasonably handled by one salesperson. Knowing this, and the annual forecast, we estimate the number of salespeople required. The most important aspect of this exercise is that it must be executed and completed well before the next fiscal year begins. Otherwise, you are always lagging in the number of salespersons needed to meet your projections. Considering how much time it takes to find the skilled salesperson, and to train and to familiarize that person with the accounts in the territory, it may be a year, possibly two, before an effective person is in the field. With our goal of 15% to 20% sales growth per year, we are constantly planning for the addition of field salespeople with our distributors. We do this by preparing a P&L proforma statement with each distributor. This is supported by a Sales Action Plan for the news salesperson, which provides a detailed sales history of every customer in the territory and the probability of 293

succeeding with new ones. When the exercise is done professionally-not emotionally-we have succeeded in getting the distributor principals’ cooperation. Were we to fail in this exercise, I doubt we could maintain the long history of growth at Pall-new products or not! Our third indicator is one of distributor profitability. We determine the profit rate we achieve from every distributor knowing sales amount, product costs, and allocated sales expenses. Each distributor is measured against a standard, and any deviations require scrutiny from the Pall sales company management. This analysis also helps keep our selling costs in line. In evaluating distributors, it is important to constantly keep in mind the differences between the manufacturer’s culture and the distributor. To help us do this, and to

ADDING

DISTRIBUTORS

Adding distributors is a very sensitive matter, especially if it’s not a traditional policy-distributors cherish their territory as much as any sovereign nation. It is their nature not to relinquish a single county, even if you demonstrate their lack of sales coverage. We rarely add distributors by encroaching on the territory of an existing distributor. We have, however, told them that should they ever get so fat, so old, or so conservative that they lose their entrepreneurial drive and become satisfied with the status quo, that this would be incompatible with our goals. In such a case, apart from downright cancellation, one possibility is to reduce a distributor’s territory. We

Add distributors in new markets not covered by present distribution

prevent any policies or attitudes that could jeopardize our relationship, we own one distributor which we have had for almost 30 years. While they are Pall employees, the company store is subject to the same rules and performance criteria as any other distributor. They provide us with a means of monitoring our actions on the responses of our distributors and they are a criterion for evaluating performance. How can we expect them to meet our goals if our own company distributor cannot? We also use this company store to test many new sales techniques before asking the rest of the distribution to adopt them. Accompanying this evaluation is a qualitative one, which very often overrides all the numbers and has to do with distributor’s reactions, sensitivities, and enthusiasm toward Pall: Does the distributor respond positively and quickly to our sales programs; is the distributor innovative in its sales actions; is the distributor self-motivated about adding more salespeople, reducing salesperson turnover, providing modern compensation packages, or investing in new sales opportunities; does the distributor have a good feeling about Pall and Pall about the distributor? This kind of distributor is always the overachiever and not just an overstriver. 294

haven’t had to resort to this, because we’ve anticipated this prospect beforehand. Since many of our distributors are family owned businesses, we have even brought in distributors’ children or heirs for prolonged training, at our expense, to be sure that a smooth succession takes place without any negative impact on our business. Since distribution is so important to our sales and to our growth, we will not allow a distributor to consign the business to anyone else. If a distributor sells a business, we do not automatically extend the sales agreement to the new owner. We will not allow a distributor to appoint subdistribution unless we have interviewed the subdistributor, and they have agreed to abide by the same conditions as the Pall master distributor. The contract is between the two and not with Pall. We expect the subdistributor to attend our training programs and to behave as if they were a full fledged distributor, making every effort to sell our filters in a professional manner. The area in which we add distributors is in new markets that are not covered by our present distribution. As I said earlier, in spite of recognizing the danger in doing otherwise, we have first given these opportunities to the existing distributor because we felt they, rather than

Contractually assign specific markets to each distributor strangers, should first be given this financial opportunity. For example, about 10 years ago we recognized that filtering fluids pumped into oil and gas wells for fuel recovery would maximize production if filtration as fine as 0.5 micron was practiced, as compared to the then 25 micron level. This is a 50 times improvement. We botched the first few years by using our existing distribution rather than setting up an entirely new group which made money by exclusively calling on oil and gas operators with a mix of products. We lost money, our distributors lost money and we lost a good part of our competitive advantages. Today, this business has been turned around, is profitable, and is sold through a specialized group of distributors that focus on that market with complimentary products. In spite of the tremendous effort in time, money, and people required to set up all new distribution for a new market, this is one of the actions unquestionably necessary in order to succeed. Realizing how sensitive our existing distributors are to any major changes in distribution, we always inform their management clearly and early about our plans so that they never feel threatened and are never confused or inundated with rumors. The rewards of honesty and openness with your distributor have no bounds. The other important consideration when adding distributors is to avoid conflicts that can arise from pirating one another’s business. We come down on this very hard whenever it is uncovered and because of the leverage with our distributors, it always gets resolved. Distributors must understand and see by your actions that you are protecting their domain. They should not fear any other Pall distributor+nly the competition. We undertake many actions to provide this protection. First, we contractually assign specific markets, even by SIC, to each distributor. We provide training and sales support only in that market. While a filter is a filter, we optimize our products for each market. A filter for the hospital market is not competitive with a filter for the pharmaceutical market. Literature is cosmetically different for each market. And, when the products are physically and characteristically identical, we differentiate

them by different part numbers and packaging. While this is an extra burden for manufacturing, it is still beneficial. All of these actions have fostered a kind of camaraderie among the distributors, and the threat of invading one another’s territory has all but disappeared. In fact, distributors now even exchange emergency quantities of inventoried items at acceptable prices, to service their respective markets and customers.

COMMON PITFALLS WHEN INTRODUCING NEW PRODUCTS THROUGH DISTRIBUTORS Two events, if they occur when introducing a new product, can have disastrous consequences. One is a major unforeseen glich in the product, and the other is failure to deliver in a timely fashion. Both are anathemas to every distributor. Always remember, a distributor has other products to sell, is strongly motivated by commissions, and won’t jeopardize other business by alienating customers with either a nonperforming product or failing to deliver after a customer has been sold on a new product’s benefits. We confirm beforehand that every new product will perform as specified and as described in our marketing briefs. Once prototype filters are available from R&D, they are rigorously tested by our Scientific and Laboratory Services (SLS) people, against a previously agreed on set of standards. Passing these, the new filter enters a “semi-works” stage. This is a small scale reproduction of the manufacturing process to be used to make commercial quantities of the filter. Manufacturing processes are qualified in the semi-works, so that when the project is turned over to manufacturing, the transition can be expected to be reasonably trouble-free. Once the manufacturing equipment and procedures are accepted-and this is critical, since so much of the machinery is proprietary that it is designed, engineered, manufactured, and installed by us-a controlled lot of filters is produced and randomly selected samples are again sent to our SLS lab for testing. Once these are approved, the semi-works 295

group will produce about a 3-month supply based on a projection from sales and marketing. Before any new filter is released for sale, two things must take place. First, a formal notification from the head of SLS is re-

keting manager and SLS are especially sensitive, at this stage, to any complaints about the product, so that someone is immediately dispatched to the customer’s plant to resolve any problems.

Most distributors are most comfortable the older existing products leased stating that the filter, as currently made, meets performance specifications and can be released for sale. Second, a notification from the head of manufacturing is released stating that there is a 3-month inventory, and production planning is proceeding on the basis of a 12month forecast from sales. As a note, both of these officials are senior officers of Pall Corporation. Rushing a new product into the market before taking all of these precautions is very risky, and if it doesn’t succeed, it’s never easy to get a handle on the real costs. Also, it can take months and months to undo the harm generated with your customers and your distributors by a failed introduction. Some of our “elephantine” distributors are easily able to recall events such as these, when you return with the next new filter product. There are some additional things we do to ease the way for introducing new filters into the market. For every new filter introduction, we select one marketing manager to be the focal point for keeping abreast of the new product’s acceptance. This person becomes the liaison between a limited number of key customers, so that prototypes can be tested under actual field conditions. This is an important circumstance, since it is nearly impossible to duplicate actual field conditions in our laboratoriesonly to simulate them. This pre-testing is invaluable in confirming the performance of a filter. Even when production models are available, many customers will want to first exhaustively test the new filter, before qualifying it for use in their plants. All of these tests are coordinated through the appointed marketing manager, while our SLS people work with the customer’s scientists. This marketing person becomes the center for all available information and can respond to any situation, either internally or from distributors. The marketing contact monitors early sales versus projections and solicits customer and distributor reactions to the new filter product. The mar296

with

KEYS TO SUCCESS WHEN LAUNCHING NEW INDUSTRIAL PRODUCTS THROUGH DISTRIBUTORS While we always “ease the way” for the customer, we also have to “ease the way” for the distributor. It’s interesting that, while distributors are always looking for new products, they also do not want to upset the status quo with customers. Overcoming this dilemma is one of the most important keys to success. No one, any longer, beats a path to your door. So the right product alone does not assure success in the marketplace. One of the most important keys to success when launching new industrial products with distributors is to overcome their inertia. As is typical in so many similar circumstances, only a small percentage of distributors react immediately and positively to the availability of a new product. Most are comfortable with established products, their older filters; they know how to sell them and where and when they will be successful. Distributors harbor suspicions about the performance of new filters, they are concerned about how they will hold up under test and whether their benefits will be realized. Distributors need to find their own way with a new filter-that is, how it behaves when Pall people aren’t around. They want to establish their own set of standards before they accept the product and before they will risk exposing it to their good customers. It’s a strange psychological attitude. Distributors respect Pall and recognize the need for new product additions, and yet, they are cautious about introducing new products to their customers. The question of inertia is probably the most important differentiation you can make when comparing direct selling to selling through distribution. The time frame in which you can overcome inertial sales resistance to new products is much shorter with direct sales.

There is, however, a way to overcome this inertia, and that is through action-lots of it-repeated over and over. What this means, is that it must be made clearly evident to every single distributor that Pall is completely committed to the successful merchandising of a new filter, from the Chairman of the Board to the most junior inside salesperson. You have to launch a daily, prolonged campaign of communication with distributors, persuading them to sell the new filter by repeating its features and benefits, reminding them why the product was invented and where it will sell, directing inside people to make important sales calls with them, directing regional sales specialists to do this too, and saturating the marketplace with seminars. It has been my experience that, if you don’t demonstrate to your distributors the value you place on a new filter, they will respond in kind with little energy and time devoted to its sale, and it may take at least 2 years to turn this indifferent attitude around. The potential loss is so great as to be intolerable. We almost saw this happen with a filter we introduced about 5 years ago, which was a phenomenal invention--it was the first truly

Thomases-the probability of reaching these sales in the time projected. This has to be a very professional exercise with as little guess work as possible. It requires a thorough understanding of the competition, their pricing, and the ability to compare our new filter to the conventional product and to evaluate the benefits to the customer. It requires a listing of every potential customer showing what their expected usage will be. Almost all of our distributors are commissioned salespersons and they are very concerned about their income and anything that impacts it. This kind of exercise-provided you do it right, and time proves that you did-has a synergistic benefit the next time you repeat it with the next new product. Distributor training is very key to our success. We never introduce a new product to the market until sales literature is printed and every distributor has been trained. They must feel comfortable with their level of knowledge. They are all professionals, and not one of them wants to appear uninformed in front of customers. They succeed with the educated customer who has confidence in and trusts the salesperson. Customers don’t want to

New products must be associated with specific customer benefits technical advance in the state of the art, for that kind of filter, in over 4 years. As soon as we overcame distributor inertia-which took a year-it became the fastest growing and largest single product sales volume in our history, to that date. I can’t stress enough the importance of preparing a detailed plan, well in advance of any new product introduction, with assigned personnel and target dates for elevating your distribution to an energized state in which they are prepared and anxious to merchandize your latest discovery. Assuming we have the right new product and that its timing is in sync with the marketplace-and never overlook the disastrous results that rotten timing can havethere are additional keys to success. One is to demonstrate to each distributor the profit potential they can expect to derive from this new product and most importantly-since all distributors are doubting

buy filters, but they do because they have to. The majority do not understand the technology of fluid clarification. What they do know is how to make pharmaceuticals, or build tractors or semi-conductor chips. What we train our distributors to do is to unburden the customer from fluid clarification problems and to provide solutions that are economical and reliable. Let the customer worry about the other problems and don’t let the purity of fluids, gases, or liquids ever become a factor. We train our distributors to become the first solution for the customer and not the factory-a stigma that many companies’ distributors constantly face. Another key to success is proving the benefits of the new product to the customer. I have developed a yardstick over the years, after many new product introductions. It’s based on the experience that the greater the gap between the claim for the product and the ability to provide the customer with credible, quantifiable evidence of the 297

benefit, the less likely the product will succeed in the marketplace and the more likely price sensitivity will be a greater factor. Very often these benefits are intuitive and require a special marketing talent to identify. I am not sure that the skills needed to recognize such benefits can be taught, although you must tell your marketing people that this is a responsibility they need to accept and a skill they need to develop. It requires experience, inquisitiveness, energy, and intelligence-a thinker, someone with renaissance reasoning. We will still go to market when the benefits cannot be quantified, but even then, the probability that the benefits are real and unusual is very high. We long ago recognized that the sales of commodity filters-which we define as filters that are not distinguishable from one another-it is inconsistent with our policy of growth, so we avoid such products. We never enter a market with a new product where we don’t believe we have made an advance in the state of the art and have solved a problem for the customer. Since we won’t stray from this tenet, our new products can always be associated with demonstrable customer benefits. However, bearing in mind what I said earlier about the positive impact on sales success of credible evidence supporting claims of benefits, we always undertake to produce this information. This is a joint effort of marketing and SLS. Marketing explains what is needed to convince the customer, and SLS establishes a protocol which, when completed, is scientifically accurate and indisputable! Some projects can take 6 months and others take much longer, but we proceed with them until they are completed. The data not only help in the sale, but are invaluable for the responding to the competition which, very often, can easily confuse the uninformed customer. Scientific data and results are hard to refute. When introducing new products, it is absolutely necessary for every distributor to have the product in inventory. It is our policy to work with the distributor in selecting quantity and styles of products to be inventoried, since they have the disadvantage of not knowing as much as we do about the performance and acceptability of any new product. Since it is our purpose to turn inventory over and not to have slow moving items sitting on the shelves, we permit a reasonable amount to be exchanged at the end of a year. Obviously, when the distributor has inventory in the warehouse, there is an added incentive to see that it doesn’t stay there. Furthermore, there is no quicker way for a customer or a

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salesperson to be turned off than when, after using the product successfully and recognizing its benefits, learning that there is a delay before the next shipment can be made. Once you have overcome a distributor’s natural inertia, you must never do anything or let anything happen which will stop the momentum. It is so much harder and takes so much more energy to get sales started again, so be very alert to any occurrence in the field that is either an obstacle to the distributor or threatens a position with customers. Finally, there is the important aspect of support of the distributor, particularly in the early stages of new product introduction. We do this by what I call the “Pall ring,” whereby we encircle every customer with our resources and capabilities. The ring starts with the distributor, since the distributor is closest to the customer. It is the distributor’s responsibility to service the account, to establish rapport, and to be sensitive to the customer’s needs and problems. The distributor is directly supported by our regional sales specialist who is located geographically close to the distributor, is employed by Pall, is an expert in fluid clarification, and provides the sales support, The regional sales specialist helps the distributor sell the customer. Further support is provided by our inside sales specialists who focus on the sales needs of a market and are extremely knowledgeable about all the filters that are optimized for that market. Forming the next part of this circle is the marketing manager who provides the technical seminars, literature, competitive information, and the very important positioning of the new product, for the market-that is, what product should be sold for the application, why, and how it benefits the customer. The SLS group provides the technical help to select and size the optimum filter system needed in the customer’s plant and the help to start up and troubleshoot any difficulties in filter operation. Finally, there is the involvement of sales management which directs all these activities on a daily basis, responding quickly to every opportunity. It is their responsibility to see that the plan is followed and that sales projections for the new products are met. Every single unit of this chain has a different function and every one is essential to success. We also learned long ago that the distributor cannot do it alone. This is probably the most important lesson we learned-to succeed with distribution, you must be able to provide this kind of complete support. If not, you will be constantly frustrated, changing distribution frequently and never achieving outstanding performance. To understand how important using industrial distribution

is to us, I quote from the first sentence of our published definition of “What is a Pall Customer,” which hangs on the wall in the lobby of our corporate headquarters: “A Pall Customer is our representative, our distributorany buyer of our products. ” SUMMARY In summary, we succeed in selling our technical products through industrial distribution by the exquisite execution of our corporate triad. First is the regular proliferation of invented filter products which have been carefully market researched beforehand, and which ad-

vance the state of the art of fluid clarification to provide previously unavailable, quantifiable benefits to the customer. Second, is to gather together entrepreneurial, technically trainable, exclusive distributors who know our markets and derive their livelihood from them. And third is to create a Pall structure of sales, marketing, and SLS, which together with the distributor encircles every customer to support them with all of our resources and capability. It is our belief that no competitor has such a powerful and global commitment to servicing the needs of its customers, which is why we are entitled to claim “world leadership in fluid clarification. ”

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