Ethical Dilemma No. 5: Referral Quid Pro Quo

Must a master agent respect the carrier as source of a subagent lead and offer alternative carriers only when explicitly asked by the subagent?

August 10, 2010

12 Min Read
Ethical Dilemma No. 5: Referral Quid Pro Quo

By Khali Henderson

The channel community has been discussing the topic of business ethics in its blogs, conferences, forums and backrooms. At the suggestion of master agent Josh Anderson, CEO of Telephony Partners LLC, PHONE+ is tackling the topic in a new and, hopefully, constructive way by presenting ethical dilemmas that have happened in the indirect sales channel and seeking comment from suppliers and partners.

Our debut effort on channel pricing conflict came in December 2009 as Ethical Dilemma No. 1. In Ethical Dilemma No. 5 we ask the question, are master agents obligated to send a subagents business to a carrier that referred the subagent?

Comments are from Dale Bohannon, president of independent agency IP Distribution Systems LLC; Ken Mercer, senior vice president for master agency Telecom Brokerage Inc. (TBI); service providers Daniel Lonstein, COO, AireSpring Inc.; and Donna Wenk, senior vice president of sales operations and customer care, PAETEC.

If you have an idea for our next ethical dilemma, please contact PHONE+ Editor in Chief Khali Henderson at [email protected].

Ethical Dilemma Scenario No. 5

A carrier referred to a master agent a subagent that was working on several opportunities. During the course of the introduction, the master agent developed the relationship with the subagent emphasizing the referring carrier. However, upon reviewing some of the opportunities the subagent was working, the master agent realized that several were not well-suited to the referring carrier, either due to technology or price.

Is the master agents duty to respect the source of the lead and to offer alternative carriers only when explicitly asked by the subagent? Or is the duty to provide the agent with other feasible solutions that may be less expensive?

Bohannon: It is the duty of the master agent to advise the sub of other viable alternatives, but at the end of the day the subagent needs to make their own decisions based on the client history. The subs responsibility is to present some viable choices, but not lose sight of the fact they need to sell something as best in class. I think the days of the wishy-washy proposals with six different carrier options and You pick what you think is best, Mr. Customer have come to a close. To make a sale, you need to lean on something you know as reliable, but make the client aware of other options if thats something they might be interested in. But its really not the masters place to be involved in this aspect of the sale. You can still sell something even in the position of an independent consultant.

Lonstein: The answer depends on several factors.

  1. Was the subagent working on these specific opportunities when the carrier referred them to the master agent? If the carrier was already involved in discussions with the subagent on one or more specific deals, then the carrier would rightly expect that those deals would be quoted on their network. However, if these are other, new deals then certainly the carrier cannot expect that every deal will always be quoted using them simply because they made a referral.

  2. Heres another factor to consider: Many times, the impetus for the agent (master or sub) to offer another network may have nothing to do with pricing or technology, but rather with commissions. What if the reason the master is suggesting another carrier is because that carrier offers a richer commission, or because the master has a minimum they need to make with that carrier and this deal will help them get there?

Mercer: I believe that we, [as a master agent], are responsible to give as many options as possible to give the subagent a chance for success. If the subagent asks us for carrier “A” only because that is what the end-user wants, we will quote it, but we will always mention that carrier “Q” or carrier “N” may be a better solution. Having a technical conversation may also turn up that another option may be better for what the end-user is trying to accomplish. As for source of the lead, if a carrier refers a subagent to us, I will always try to give back to that carrier by giving them the first shot. We actually keep track of where the subagent came from. If carrier “Q” refers a subagent to us because they will not make a volume commitment, and we never quote that carrier, they would stop referring subagents to us. 

Wenk: One thing I’ve learned after 24 years in the industry is that relationships are key. When we as service providers demonstrate a commitment through products, pricing, commissions and service to make our partners successful, they in turn will show loyalty to us. Its deeper than a contractual relationship its a level of personal trust and understanding. Similarly, master agents must show value to their subagents and how they can personally serve the subagents needs to meet their goals and build that powerful business rapport.

In this particular scenario, the primary issue is whether there are any prior agreements surrounding the subagent referral to the master agent. If its part of the agreement to be the exclusive provider to the subagent, of course, that should be respected. However, without that agreement, I believe its the duty of the master agent to serve their subagent in the best way they can, even if it means referring another provider. With the relationships and reputation that PAETEC has earned, I believe we have much more to gain from such an open relationship than we have to lose.

Does it make a difference if the alternative in question is attractive because of a lower price or because of a richer feature set?

Bohannon: No, right now its pretty rare to find a situation where any carrier has a huge advantage over another carrier technology-wise. Everyone is relying on the same two or three platform choices at this point on the backbone side. Price is always going to be an issue, but 95 percent of the time, you can get the price you need to get from any carrier, so price should never be a fundamental qualifier to make an independent recommendation. The richer feature set at this point, to me, is really tied to the providers back-office provisioning and billing support, and how complex or easy it is to place an order for any given service these days. Some carriers make it easy and some make it unbelievably hard just to do a simple order. A bad order process usually results in a sloppy order and an unhappy client.

Lonstein: I believe that an agent should never have to apologize for offering their customer the best product at the lowest price. If the real reason for the change in carrier being quoted relates solely to end-user pricing or features, without regard to the agent’s commission, then I think it is hard to argue against the master (or subagent).

Mercer: Price is usually fourth on the list. Footprint first, product second, features third, brand fourth. Price may open the door, but if they can’t connect in a needed way, or get charged more for usage, it won’t make sense.

Wenk: In this case, no. Were looking to win business because its the best solution for the end-user. However, if price or a feature is singularly the deciding factor, I hope that wed have the open communication where the master agent would let us know. We like to look at proposals holistically to meet the overall goals of the end-user, which often cant be captured in one or two data points. But, receiving those data points are valuable for running our business, and could be feedback that wed need to relay to our product developers.

What could the master agent do to satisfy its duty to both the carrier and the subagent?

Bohannon: As with any relationship, you owe it to the incumbent to let them see what they can do for the client first. If they are doing a good job, if the commissions are relatively equal plus or minus 1 percent, I dont know why anyone would go looking to move someone and create an entirely new rail car full of provisioning work and post install billing issues from an entirely new source.

At the end of the day, the incumbent needs to know this project will be shopped, and anyone with minimal experience would do this kind of basic due diligence for the client. The sub and the master have one purpose, and that is to make the clients life easier, while assuring they are getting as much bang for the clients buck as they can get for them. No offense should be taken by the incumbent; its just good business sense. Its nice to have clients that feel good about the deal they have with any provider; it builds a strong relationship for both the provider and the agent channel and creates the conditions necessary to establish long-term business, which is what its all about. I have clients that have been with me for 12 years and longer, as we take care of them in a carrier-agnostic fashion. But we know who we like and who we dont. You cant be afraid to pull the trigger and move someone if necessary, but its hopefully a last resort.

Lonstein: They would have to be honest with the carrier about what they are planning to do and why, at the very least giving the referring carrier the opportunity to compete on price or other factors.

Mercer: Always do what is right for the end-user. We are paid residual commission in most instances. We are incented to keep the customer on a contract for as long as possible. The best way to do that is to give the subagent a solution that the end-user will be happy with for the entire term. That includes the right technology, price, features, expansion, reliability and support.

Wenk: In business, a simple rule I follow is to do whats right for your customer and the business benefits will follow. I will always counsel a master agent to serve their subagent in the best way they know how, even if that doesn’t mean PAETEC. If were deficient in a particular area, Id expect them to let us know though, and well fix it. I dont want to win an agent out of a contractual obligation. I want to win it out of trust and loyalty, because we will serve their business and their customer in a level that is uncommon in the industry.

Would the carrier be justified if it ceased to provide subagent leads after learning that a referred subagent purchased from an alternative carrier through the master agent?

Bohannon: I think if they are given first shot at the deal (as they should always be), and that if they know the deal is going to be shopped (either by the agent or by the client using direct side folks), it would be sort of arrogant of them to be resentful of that process. Experienced agent managers know if the agent does not bring the prospect a few choices, then the directs will be invited in for sure, and then all bets are off as to who will write the order.

So, as with anything, it goes back to being honest with your business contacts and then doing what you say you are going to do. If you show some business integrity and dont lead your agent managers on and then consistently pull the rug out from under them, there should be no problem. Its business that, at the end of the day, is tied to how you manage your relations with people (clients and providers), not who has 0.00001 percent less latency on Thursdays at 4 p.m.

Lonstein: This is a difficult call to make. If they truly didn’t have the right product, then no, [the carrier would not be justified in cutting off leads]. However, if their product was workable and within range of competition even if not the cheapest then the carrier would be justified in feeling treated unfairly by the master.

Mercer: Not if it occurred once; that would be short-sighted. It would be justified if the carrier was not even getting quoted. If there was an issue I would look at it as an opportunity to show the carrier where they kept failing, and try to fix that. For example, a product does not do things the competitions does, or the footprint is not available. Ultimately, the carrier does not have to give us leads. If they are compelled to do so, its because they know we pay right and timely, we service well and we won’t risk their reputation referring to us. We have earned that. How many people have asked you to refer them for jobs? How many times have you thought, “I really like them, but I don’t know how they are to work with. This could be a poor reflection upon me.”

Wenk: I suppose that would be the way many would do business, and it does have some merit. But, in business, you need to look at the road miles ahead and not 10 feet in front. Once you become an adversary rather than an advocate for your master agent, the relationship is lost and business will soon follow.

I believe every situation is a learning opportunity for the carrier. Why did the agent feel that another carrier was a better fit? Are there changes needed to the product or pricing or capabilities, or did we just do a poor job in communicating the benefits to the agent? Im not as concerned about that deal as the overall relationship.

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