Selling Through Gatekeepers: Fiduciary-Based Marketing

Posted on 4/14/2020 11:12:40 AM By Ujjval Vyas

In part one of this article, I discussed the core differences between a direct and indirect sales process in B&C markets and the pivotal role of information intermediaries. Here, in part two, I briefly cover the fiduciary duty of state-licensed information intermediaries and discuss the important role of manufacturers in the flow of information to the end user. 

In part one I showed how the sales process in B&C markets is based on a bifurcated information stream and product stream.

Indirect Sales Adhesive Company
                (click to enlarge)

This bifurcation and the role of the information intermediary (represented by the architect in the diagram above) create the unique B&C sales environment.  We now look more closely at the implications of this bifurcation for manufacturers given the duties required of the design professional when acting as the information intermediary.

The design professional is a specific type of information intermediary, known as a learned professional.  Your plumber, car salesman, or golf pro may have more knowledge than you, and may even recommend purchasing options, but they are not given a special monopoly or privilege by the state.  This monopoly is reserved for learned professionals, a special, legally recognized category characterized in part by:  extensive education (usually at the graduate level), self-regulation which allows the profession to create its own licensing exams, significant continuing education to maintain licensure, and most importantly for this discussion, a fiduciary duty to their clients.  Practicing architects and engineers (A/Es) fall into this category of licensed learned professionals.

To effectively fulfill their fiduciary role, learned intermediaries must get the information they need to service their clients. In B&C markets, the intermediaries rely on a vast array of product descriptions and data, along with varying levels of input from sales representatives.  This is where manufacturers enter the picture.

No A/E can function without this information.  And no manufacturer can hope to succeed without finding a way to get this information into the marketplace.  Knowing generically that BASF, 3M, or Henkel produces construction adhesives may serve some purpose, but to correctlymatch product performance, availability, safety, and other attributes to project requirements, A/Es need information that manufacturers have prepared specifically to meet A/Es’ needs.

Unlike selling to a commercial intermediary in the product stream, convincing a learned professional to cause the purchase of goods or services by a third party (ultimately the owner) demands that the manufacturer understand and act based on the fiduciary duty relationship.  Unfortunately, many manufacturers and suppliers remain confused about this needed reconfiguration of sales and marketing management.

Many people are dimly familiar with fiduciary duty because they have engaged an attorney, accountant, or physician for professional services.  The most striking characteristic of this kind of engagement isthe lack of detailed contract documents.  This is odd given that these professionals could easily take advantage of their clients in ways the clients would never discover.  For example, if an attorney had a deal with an expert witness where the expert paid a portion of their fee back to the attorney, or if a doctor had a deal with a drug manufacturer to receive lucrative research grants in exchange for recommending a medical device, most of us would be disturbed and feel violated as the client or patient. 

There is a reason we trust such opportunism is not being exercised against us as the client or patient: the learned professional has an affirmative fiduciary duty to us and must protect our interests first.  No self-dealing is allowed (unless we give our explicit permission) and no advocacy for interests other than our own can be pursued during the engagement.  In short, the learned professional cannot serve two masters at the same time. 

Although some consider it controversial, I maintain that licensed architects and engineers are learned professionals just like physicians, attorneys, and accountants.  As a result, A/Es have the same primary fiduciary obligation to their clients.(In five states, we already find the requirement for fiduciary duty between architect and owner, and in one state, Nebraska, the statutory language encompasses both architects and engineers.)  This means that when a manufacturer or supplier is seeking to sell to a licensed architect or engineer, they must interpret the context of the sale very differently.  The design professional is acting as an intermediary for the project owner and must protect the owner’s interest first and foremost.  If the information provided by the manufacturer cannot meet the threshold of objectivity and transparency to allow the A/E to present the owner with the proper options, the designer could be failing in their fiduciary duty to the client.

This duty necessitates a difference in kind, not just degree, when manufacturers interact with and provide information to A/Es in B&C markets.  The nature and boundaries of the information are delimited by the fiduciary duty that the A/E has to the owner. 

By analogy, in the medical industry, this would be the difference between selling equipment or supplies directly to a hospital versus selling medical devices or drugs that require a physician’s prescription.  In the former case, the marketplace is not concerned with the benefits or risks to a third party (setting aside product liability).  In the latter scenario, the sale of any product is for the benefit of a third party, the patient, to whom the physician has an affirmative fiduciary duty.  The learned professional must look out for the interests of the patient before his own. And as an information intermediary, he must be transparent regarding both benefits and risks, and must declare openly if he has any possible conflicts of interest.

This means that sales and marketing material that selectively presents the product and its attributes in a non-objective manner—either by commission or omission—is out of bounds.  In other market verticals, misrepresentation, omissions, exaggeration, lack of transparency, and other common tactics employed by some manufacturers may be standard operating procedure, but in B&C it can’t be allowed.

This will present both hurdles and opportunities for B&C manufacturers.The main hurdle will be making the necessary internal changes—in sales strategy, policies, personnel, and marketing materials, not to mention corporate culture—to ensure that the manufacturer can provide the right kind and quality of information. It’s possible that two completely separate types of materials would be needed: one for the A/Es in the information stream and another for distributors and retailers in the product stream.

The opportunity for manufacturers is to begin practicing what I call fiduciary-based marketing.

Indirect Sales Process-Fiduciary Duty
                 (click to enlarge)

If an A/E specifies a product and relies on material that a manufacturer affirmatively represents is adequate to fulfill the fiduciary obligations to the owner, the A/E is in an ethically robust position and lessens the risk of litigation. Those who supply information that will help fulfill the obligations of the A/E to their clients will become the providers of choice.  And those who already use a consultative approach will be able to build their relationships to become truly trusted advisors to their A/E customers.

Manufacturers who switch to fiduciary-based marketing in B&C markets could gain significant competitive advantage.  As we wait for the common law to catch up, now is the ideal time for proactive manufacturers, both large and small, to strengthen their position in B&C markets by providing robust, transparent, and objective information to both A/Es and their clients.

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