Channel Marketing Strategies for Success

What Senior Management should know about channels but may not

Since my entire career has been focused on indirect sales channels, I often feel caught off guard when I deal with senior executives who just don’t “get it” when it comes to understanding channel needs, and more importantly, how to do business through the channel. Clearly, those companies that are 100% reliant upon the channel to achieve revenue goals must get it, yet it’s surprising to me how many others  don’t. As such, this article is offered as a supplement to a prior entry entitled The Three Basic Tenets of Channel Marketing—an article dedicated to helping marketers assess whether they have a “channel culture”—or not. This entry is intended to go one level deeper to remind all those involved with the channel what makes the channel tick, and more importantly how you can take advantage of that.    

Support the three value builders when communicating your programs to partners. My channel experience began long before there was a high tech channel (do I show my age?). At the time, my focus was the consumer products categories in retail. Way back then (when phones had dials), all programs targeting retailers had to be presented in terms that were compelling to those retailers: the ability to 1) increase basket (shopping cart) size, 2) increase shopper frequency, or 3) increase the number of shoppers. Those foundational principles still apply in B2B channels, only the terms have changed. “Basket size” becomes average transaction value or margin, “shopper frequency” becomes the number of transactions or number of sales opportunities from any one customer, and “number of shoppers” translates to net new clients. If all your partner programs were communicated to help them understand how you can help them to accomplish one of these three, you will be more likely get their attention. After all, they don’t care what your programs will do for you, they want to know how your programs will benefit them.

It’s your job to build the brand—not the channels’. Your channel partners are not interested in building your brand. Their job is to grow their own business. So stop sending marcom templates that match your graphic standards and messaging with a “your logo here” placeholder—and referring to it as “partner customized.” Marketing materials you provide have to focus on the partner’s value proposition—with your products featured as a means to their end, not as the focus.

Keep it simple. This subject has been covered in depth in prior posts (see “KISS and Tell,” for one). Most vendors make it too difficult for partners to do business with them. Examples of this complexity include complex PRM systems that require different logins, escalation paths that are unclear and vary from program to program, and convoluted partner tiering systems that seem to change without rhyme or reason. Yeah, this may be easy for you to understand, but because your partners are doing business with anywhere from 8-25 other vendors, they are never going to understand your programs as well as you do, so you might as well make them foolproof.

Standardized configurations. The industry is moving to managed services providers (MSPs). Unlike the transaction-oriented resellers, MSPs are seeking to standardize their deployments across common components to streamline installation and support and to maximize buying power. This means that they have a predefined short list of preferred vendors. If your product is in a commoditized category, and your brand has not made the short list for a given MSP, it’s going to take more than a simple incentive program to displace the preferred supplier. The battle for partner “share of wallet” is going to get more difficult as a result. This leads us to….

Partner mindshare is proportionate to a vendor’s ability to add value to the partner’s business—Maybe you represent a product/brand that creates demand in-and-of itself—essentially providing a “pull through” engine for their business. The resulting ability to create end-user demand (or preference) may be valuable enough to partners. However, other vendors in more commoditized categories have to add value other ways. Many of those ways are stated above, others are provided in a separate post, “How to add value in a commoditized market.”

Like your products, partners also have a lifecycle. As your resources will become increasing scarce (your available staff time and money), you must know where to focus your resources for maximum returns.  To that end, it is important to know when you have reached a point of diminishing return on your partners, signaling a maintenance mode or possibly even dropping them from your roster.  The need to manage the partner lifecycle had never been truer than with the current rapid adaption of the MSP model.  Too many channel marketers are hoping their partners can adapt to a recurring revenue model. Hope is not a strategy, and the reality is that many will be unable.  It is not your job to keep your partners in business.  Begin your segmentation process by identifying a key set of metrics for partner performance, and then monitor the trends across each partners over time. For instance, monitoring trending line for number of new deals open, close ratios, average value per transaction, support time, customer satisfaction can be very revealing, just for starters.  Use these metrics to categorize each partner in the appropriate life stage. Use “new”, “growth”, “mature”, “decline”, and “drop” at a minimum–whatever it takes for you to know when to slow investment, and when to recruit new partners.

Creating and maintaining channel programs are not “Set it and forget it”—it is a constant evolutionary process. Those that effectively turn their channel programs into a competitive advantage start with a channel mindset. Applying these basic tenets becomes a routine.  The bigger point: it’s not really that hard, just put yourself in their shoes.

What is the magic number that you must get to optimize ROI on MDF?

One of the things I strive for when writing this blog is that the topics reflect real-life experiences and issues brought to my attention from fellow channel marketers. To that end, I had one curious question asked of me twice recently that seems like it would be fitting topic: “What is the magic number we need to attain to optimize the ROI of my MDF program?” I could tell that the response the questioners were hoping for was something along the lines of, “Your MDF program should deliver a return of 6:1.” Now, I know what you’re thinking: “Deliver what at a return of 6:1? Why 6:1?”

First, there are many possible values that can be inserted to more accurately define “what.”  And all those values should closely align with your program goals and go-to-market strategies. Sales? Dollars? Units? Net new customers? Training new partners? Opportunities created? What else? Lots else! I equate MDF (or co-op, for that matter) with an allowance you’d give your college kid. In this analogy, your college student receives an allowance each month which you hope they spend on things to forward their education (books, room and board, etc.) and not on other things (beer). Your MDF program guidelines then become the equivalent of how you want your partners to spend the money, and how they prove that they spent it on those things. That should be the “What.” Hopefully all the “What” they spend it on, leads to an end game of a good education (or “sales,” when we bring the analogy back to the reality of this MDF).

Earlier, I referenced a 6:1 return, which really means nothing in and of itself because it is relative—it only means something compared to something else. There isn’t one standard ROI “target” to measure MDF success across all marketers. For example, if you’re a manufacturer of a #3 brand within a commodity category (volume) that requires one set of GTM initiatives, you shouldn’t believe your “number” should be comparable to that of another marketer who is producing a leading edge early adapter solution (value) requiring a completely different set of GTM initiatives. That comparison is both unrealistic and unfair. So there is no “magic number” because programs are too different with too many different variables.

There is a bright side, however, because you can get to your magic number…

There are three ways to calculate the ROI of your MDF program:

1)      Impact on overall sales

To find this number, you will have to a) assess what you are measuring: total dollars? Specific product line? Units? Net new customers? Then, b) define the sales period (such as,  year-to-date, last year, last quarter, whatever, but that time period  must consider the effective sales cycle of your product at a minimum). Next, c) create a test group of channel partners who sell those products and use MDF to support those products at a reasonably high threshold during that period (remember, this is relative) and d) create a control group of partners that is roughly the same size and is equivalent in every way except they either don’t use MDF or use MDF at low levels. Finally, e) the relative difference in sales between them represents the LIFT devoted to your MDF program, and the cost you invested in the test group represents your investment to get there. Divide the one into the other and Voila! you have your number. Is that number impressive? I don’t know. But at least now you have something to monitor over time to see if you can improve it—because it is a relative number, after all. This exercise doesn’t require an analysis of many resellers to perform this. Your sample size is dependent upon your overall partner universe, but sampling fewer than 100 resellers will likely be enough.

Sound too difficult? Then there are other ways to evaluate ROI. In fact, you should do these other two anyway, as they are preferred over the previous way as “leading indicators” of MDF effectiveness.

2)      Define how you want your MDF to be spent, and track your level of spending against those initiatives

Now, by “how”, I am not referring to activities (like newspaper advertising or email campaigns), I am referring to “to what end?” as your MDF spending should closely align with your own GTM initiatives. For instance, specific products? Vertical audiences? Solutions?  Would you rather your partners use the turnkey marketing programs you provide to support those efforts? Do you hope they use their MDF for training? All these GTM initiatives provide a basis to track spending (and successes) over time. This may take the form of a “spending by…”  report that reflects absolute investment, as well as a percentage of the total investment. In addition to overall evaluation, results may be compared between partners’ regions to make those results more meaningful.

3)      Activity ROI

The closest MDF inherently gets to a single magic number for ROI is at the activity level—cost per lead, cost per attendee, cost per impression, etc. Most of the activities normally included in an MDF or co-op program can be assigned a metric component (responder, attendee, etc.), allowing you to calculate a “cost per.” Again, the “cost per” number means nothing as a standalone number, but if you can compare it with other activities, or those attained by the more “successful” partners, now you’re on to something. For that reason, we recommend that  you standardize these metrics between activities as much as possible (such as applying cost per lead commonly across email, direct mail, social media, etc.) to understand a relative comparison between activities. This comparison will clearly help any one partner in planning efforts. What’s more, comparing these numbers BETWEEN partners provides a foundation for best practices.

In summary, we recommend that you try to practice all three approaches—then you’ll have your magic number.

What’s going to keep you up at night in 2012?

Normally I like to start these entries on a positive note, though this title seems ominous for channel marketers. But there is a positive spin: The good news is that if none of the items listed below will keep you up at night, then you can consider yourself lucky. Conversely, if you expect that any of these items will keep you up at night, you can take comfort in knowing you’re not alone.  In any case we hope that you feel free to add to it.

Lest you think I’m just making this stuff up, the list itself comes from a recent advisory board meeting of a prominent annual channel conference (per the terms of the advisory board, I am not allowed to give names or details—but trust me, you know of it).  The advisory board was attended by senior channel leadership for vendors in the software and hardware space, as well as telecommunications services and cloud providers—in other words, a good cross section of channel leadership in the B2B technology industry.  The following topics are listed in order of the passion expressed by the members when sharing their issues, as well as the consensus of those issues as echoed by others in the room.

The channels’ migration to managed services was at the center of many of the topics.  Many marketers are talking about the impact of “the cloud,” but it seems that any issues related to that are a subset of the broader managed services model rapidly adapted by the partner community as of late. For reference, “Managed Services” as represented here refers to a dramatic change in the business model for your channel partners and how they earn fees from their clients (from VAR to Managed Services Provider, or MSP). This change manifests itself a number of ways, chief among them being the continuing shift from sales to service, from one-time revenue to recurring revenue, and from on-premise to hosted solutions. By and large, “Managed Services” considers the growth in Software as a Service as well as Hardware as a Service, in addition to other services offered by the partner as part of an overall fee structure. Using that understanding for context, the following list will surely make more sense.

Let’s begin with the specific issues related to the MSP migration:

Growing channel conflict between channel partners and the vendor’s own professional services group—both of which are now in the business of providing services, but how do vendors manage conflict between the two competing groups for the same client?

The vendor’s role in migrating current channel partners to a managed services model. Specifically, to what extent should vendors be involved in helping their partners adapt to the new model versus simply finding new partners who are more adept at applying an MSP model?  This question is even more relevant for hardware vendors who now may have to lease or finance their products to adapt to a recurring revenue model versus a one-time sales transaction.

How do hardware vendors adapt to the shift in sales reporting? Since sales have traditionally been reported as one-time revenue, how do the vendors themselves adapt to a recurring revenue model?  The shift can have a dramatic impact on income reporting to the finance community if suddenly the traditional “big bump” of an initial sale is replaced by “small bumps” for the same deal size that spans months or years.

The shifting division of responsibilities between vendors and partners—for instance, under the cloud or MSP model, who owns the client? Who is responsible for invoicing? What additional responsibilities must a vendor take on to support the model and the transition into it?

Of course, there were also issues discussed that are NOT related to the MSP topic. Not surprisingly, these issues are not necessarily “new” in that most have plagued channel marketers for years.

Technology partners as an emerging sales channel—the growth in this trend seems to span all categories as vendors partner to offer a comprehensive solution, yet how should the programs and incentives be designed to optimize these strategic relationships…do they leverage existing channel program offerings? Or, do they require unique programs?

Best practices for designing and managing global channel programs—what decisions and responsibilities are centralized versus decentralized? While all channel marketing is “local,” just how much autonomy should regional managers possess to design and manage programs within their region while providing the controls and insight headquarters requires?

Optimizing incentive strategies—which programs are most effective and why? Should MDF be dropped in favor of rebates, or visa-versa? The quest for incentive ROI seems ever-present.

Best practices for Joint Marketing Planning—while the promise of JMP works in concept, for many the process is too inefficient and doesn’t necessarily result in the promise of more aligned sales and marketing practices.

We have an opinion on all these issues, of course. And as for the last two, there is a lot of content on the CCI website that addresses them www.channelmanagement.com/resources.  However, at this point it may be more interesting to hear about what’s on your list?

The 3 Basic Tenets of Channel Marketing

Upon reading this, one might  initially believe we are desperate for content and relying on “Channels 101” for inspiration.  Yet, I can assure you the reverse is true.  I have been involved in several engagements recently where we were asked advice on specific decision points that were indeed counter to these basic tenets.  So, don’t write this entry off as too basic until you read on to see if you recognize yourself in these tenet violations.  The degree to which  you embrace these tenets is a good measure of your channel culture.  I find the biggest violators often do not have a channel culture and/or rely on the channel for less than 50% of their revenue. Here are the basic tenets and how the violations manifest themselves within each.

1)The channel is made up of independent businesses—each having their own agenda.

The fact that they are independent businesses directly translates to reduced mindshare for you (relative to a direct sales organization). They have more on their mind than making their vendors happy.  So don’t assume they read your emails, understand your programs, or will “get by” with the administrative complexity of your programs (thereby increasing their administrative burden).

Unlike friends on facebook, quality is better than quantity in your channel community. Make sure your value proposition aligns with their go to market strategy and that your program makes it worthwhile for them to embrace.  The closer the alignment, the more you will be mutually dependent for success . What’s more, your programs should be both easy to understand and easy to administer—even small improvements can help (such as shorter payment and reimbursement turnaround times which positively impact their cash flow).  Lastly, note that ALL partners have a lifecycle—some are shorter than others.  Recognize where each partner falls within their lifecycle for your products and adjust your engagement strategy accordingly. If any of your partners are no longer growing relative to your target rates (including opening more deals, increasing close ratios, using MDF etc), consider whether you should continue to invest in them (which will only result in diminished returns) or put them on a “maintenance” program. Successful channel segmentation is much more than assigning a medallion level based on volume.

2) Channels are about efficiency–they should be the preferred alternative to you engaging customers directly.

Once upon a time when cars didn’t have airbags and people dressed up to get on airplanes, computers were the size of a small house and were sold to large enterprises who could afford them through a direct sales model by someone wearing a blue suit. As the technology became more affordable, and accessible to SMB markets, the channel was born–because the direct sales model was cost prohibitive.  All things being equal, everyone would sell direct if they could. Even Coca Cola would prefer to have someone standing by the entrance of every convenience store to put your favorite Coke product directly into your hand–rather thanlose a sale to Pepsi.  But they can’t, because it is not practical.

Yet, the issue of “channel conflict” never seems to go away.  The trust between the direct and indirect sales teams is ever-present.  According to the tenet, this should not occur—so why does it?  There are several reasons too lengthy to address here, but if it does, your basic channel strategy is flawed.  Either the lines that defines who owns what prospects are not clearly defined, you have too many partners so you’re only competing against yourself, or you do not have the opportunity management/referral programs in place that honor named accounts or that reward partners justly  for referrals in cross-channel sales transactions.

3) Your channel strategy should be aligned with how, and where, your customers want to buy.

The second component of distribution efficiency is to align your channel strategy with the consumer purchase preferences. Your partner makeup should be born from an understanding of your consumer’s purchase habits (throughout the buying process).  For instance, the well published rise of the Managed Services Provider as the new channel darling is no coincidence.  The trend exists because small businesses prefer to buy this way believing it’s a better alternative than investing in comprehensive IS staff or in some cases a costly infrastructure. But it also means that to survive, a reseller must adapt to a different business model relying on a recurring revenue stream with monthly billing cycles, rather than a project based model providing larger sums of cash in advance.  So, to capitalize on this trend, should you find new resellers? Or help your current reseller community convert to a MSP model?  Well, there may be some exceptions, but generally it’s not your job to keep your channel partners viable if their go-to-market business practices are flawed. The percentages are against you if you try.  For instance, on the retail side, the reason CompUSA is dead, and Best Buy is dying, is because they are no longer the preferred shopping outlet for consumers.  Spending energy on keeping them alive is only postponing the inevitable. The adaption of managed services is no different.

Your channel strategy can, and should, be designed to be a competitive advantage. One that efficiently moves your product to end users, capitalizes on market opportunities, and is the result of  many successful partnerships. But it can’t be optimized if these basic tenets aren’t followed.  So, the next time you want to revise your channel strategy, run it past these tenets to see if you are really moving the program forward—or not.

What B2B Marketers Can Learn From Best Buy

This will be an unusual post for me in that it’s a commentary triggered by a news item I recently saw on one of the financial networks while eating breakfast.  Best Buy was the focus of this segment in that they had once again had reported a bad quarter. As a result, they are looking to either close stores, downsize stores, or sublet surplus space in their existing stores (as they are already doing).  There are several reasons as to why they are struggling, with the downturn in retail music sales and the growth online purchases among them.  This caught my eye in that it reinforced the “Wheel of Retailing” theory at work. In its simplest form, the theory states that every retailer has a life cycle where all successful retailers begin life as a small (or regional), low cost leader.  As they grow, however, they add services and/or departments which eventually bloats their overhead and raises costs.  This leaves room for a new “low cost” entry to emerge  to render the older outlet obsolete as consumers migrate to the newer, forcing  the more established retailer  into a downward spiral financially.  This theory is evidenced with the history of former giants like Sears, Montgomery Ward, and Kmart, and the spectacular rise of Walmart.  The word “fall” is relative, of course, because some have managed to survive by reinventing themselves as a new segment. The re-birth of Target is perhaps the best example of this.

How does this apply to the greater technology channels reseller as we know them today?  Let’s step in to a time machine and take you slowly back to the beginning of technology products channel sales (I was actually witness to this—at the risk of showing my age).

At the turn of this century, Best Buy was the category killer that was credited for the demise of two major giants: Circuit City and CompUSA, plus countless regional chains like The Good Guys (who eventually merged with CompUSA so they could die a slow death together). Earlier still, the now defunct CompUSA was credited for reinventing the category because they were going to steal share from the then emerging corporate resellers, Computerland and Businessland, each featuring a mix of inbound (retail) and outbound (direct sales) strategies.  With each power shift, technology marketers ran scared about how the “new guy” is changing the rules by making unrealistic demands (e.g.: requiring large shelving allowances), and making them wonder “How can we meet the demands of these new guys without alienating our other channels?” .  And the answer to that question is: you have to be where your customer wants to buy, and if it’s in a different store—so be it.

VARs, as a channel, preceded all these entities when it came to being an indirect channel for technology marketers. The genesis of the VAR  goes all the way back when independent channels started in the mid- to late 1980’s as technology products became accessible and affordable by medium and small businesses.  Prior to that, the room-sized IBM enterprise computers were sold directly to only larger enterprises who could actually afford all that computing power (which is now commonplace in the average laptop).  As new devices emerged (like fax machines, personal computers, and printers)  access to technology products moved down-market to smaller companies. The VAR was born because the cost of sales would otherwise be too high for a manufacturer’s direct sales force to be a profitable option.  At the time, these resellers made most of their revenue from margins on the sale of hardware. These new personal computers and related peripherals were only used at the work place—albeit in increasingly smaller businesses.  As technology products became more affordable by smaller businesses, corporate resellers emerged (the aforementioned Businessland and Computerland among them) and were the first category-killers in the technology space. Their emergence was expected to trigger the demise of the VAR as we know it. However, unlike the string of category killers previously mentioned in the retail world, this didn’t happen–despite all the fears expressed by VARs and Vendor’s alike. One may ask: “Could the continued existence of the VAR be a violation of the wheel of retailing”?   I contend that the demise of Businessland and Computerland instead initiated a bifurcation of the technology reseller market, with each extreme appealing to a separate buyer: Retail for personal and SOHO technology, and traditional VAR/resellers for business solutions (this despite the fact that Best Buy and other retailers experimented with outbound corporate sales).

The VAR, however, is going through an evolutionary path all their own.  Over time, service revenue replaced hardware margins and new segments were born. At one end, DMRs kept the pure hardware business. At the other end, consultants provided services only. Other segments fell in between. All survived because each appealed to unique customer needs in a rapidly growing market (bigger pie).

Now, however, B2B technology marketers are experiencing the emergence of what just may be a category killer for the traditional VAR: the Managed Services Provider.  Similar to the reasons that forced the demise of their retailer counterparts, the MSP represents an entirely new business model—one that is built on subscription services, including hardware as a service, rather than one-time contracts.  Migrating to this model will prove to be a challenge for many VARs—and it will likely require a restructuring of their relationship with their vendors and distributors alike.  As a result, the big question facing most B2B technology marketers today is: “Should you help your resellers make the transition?”  It is my opinion that you should learn from the hard lessons demonstrated in the “wheel of retailing” and let the strong survive through natural selection—even if it means replacing existing loyal partners with others who have figured it out. Bold stance, perhaps, but history says that if you have a market for your product, you should sell it through the resource that your consumers want to buy it from. That’s the first lesson of channel marketing—it’s all about the consumer.

Using Auctions to Optimize MDF Utilization

Online auctions are a great way to profit from the otherwise unwanted treasures you have laying around the house. The popularity of eBay and other auction sites are a testament to that. However, auctions are also an emerging means to profit from otherwise unused MDF allocations as well.  In this instance, unused MDF allocations are “auctioned” at the end of a program period in an effort to divert those funds to profitable ventures before those funds would otherwise expire.

In practice, auctions work like this:

Near the end of a program period, there are typically a certain percentage of funds that are left on the table as “uncommitted”. These funds may have previously been set aside for use by regions or partners, but no requests were made for them—essentially freeing them up for auction, or alternatively, expiration.

The program administrator determines how much of these funds may be available for re-allocation. In addition, the administrator determines which region or partner segment may qualify for those funds, and therefore invited for participation in the auction.

The selected partners are notified of fund availability. That notification also includes  criteria for eligibility—such a to support a specific initiative or product group that align with the Vendor’s own GTM goals.

Access to the funds are not automatic, partners must submit a plan for the funds which detail how the funds will be spent, as well as the business outcome (such as the expected value of sales, number of opportunities opened, number of new customers, etc.). Typically, a deadline for submission is provided for any plans to be considered.

The program administrator reviews each plan, then awards funds to the “winning” plans accordingly.

Auctions are clearly a great way to utilize funds that would have otherwise gone unspent. Therefore, it’s easy to see why they are growing in popularity.  However before embarking on such a program of your own, there are some things to consider.

Timing: Depending on your sales cycle, the available time in which to use the funds before they expire has to be meaningful.  Don’t assume your partners are going to come up with a program that has to be designed and executed in the short term that is going to set the world on fire.  Likely, the most rational plans will be submitted by those partners who wish augment what they are currently doing.

Anti-trust : In the US, anti-trust laws as expressed  by the Robinson Patman Act applies to promotional allowances (Co-op or MDF programs) as well as price discounts (because in the eyes of the law, incentives such as these are considered another form of discount). Loosely translated, that law states that you must provide all competing channel partners with discounts and allowances that are proportionately equal.  There is wiggle room with regard to the interpretation of “competing partners” and “proportionately equal” that has been a subject of a prior blog entry. But the bottom line is this: your legal council may have a POV on how these funds may be selectively distributed.  In practice, however,  there is very little exposure to you because for the act to be enforced, someone (like, one of your partners) would essentially have to prove that funds were granted to a competitor of that partner that resulted in an unfair competitive advantage.  While unlikely, it’s still a consideration. After all, you wouldn’t want such a program to be a career-limiting move.

If you are going to consider auctions to augment your program, I would recommend that you carefully monitor the use of those funds for any success stories and best practices that may arise. Knowing this will help you justify, and enhance, future efforts.

How to Stand Out in a Commoditized Market

The task of marketing commoditized products has never been a haven for marketing professionals. Differentiating brands to consumers (end users) is often difficult and costly—usually yielding very low ROI.  After all, how do you differentiate a peach?  While many companies spend millions attempting to do this, really the more efficient route to differentiation is by targeting your channel partners—not the consumer. For this reason, commoditized products can be a channel marketer’s dream.  The reasons why are the subject of this blog entry.

Interestingly, one of the bigger challenges I see with vendors is actually admitting their product or category is indeed commoditized, as everyone feels that they have that “one ingredient” for differentiation which justifies continued marketing spending against the consumer to increase awareness and encourage a “pull through” marketing strategy.  So, without naming categories or specific brands (as I don’t want to offend anyone, least of whom would be our current and potential clients), let’s start with some characteristics of a commoditized product category to see if you qualify as such:

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Hopefully, the information in the above chart will help you objectively decide if your product falls within a commoditized category or not.  If so, read on—‘cause the rest of this article is for you.

To repeat my claim: the most efficient way to gain market share in a commoditized category is through channel loyalty (vs Consumer preference).  The use of the word “efficient”  is key, because it implies winning channel loyalty as a less costly means (Money, Time, Manpower) to achieve the same end (vs creating consumer demand)—in this case market share. This of course is great news for channel marketers, because it just brought your position front and center. Essentially, your channel program becomes your competitive advantage.

So what does it take to increase channel loyalty? Well, there are many possible answers based on your category (e.g.: availability, service, relationship), but certainly among them will be incentives for performance.

If your product or category doesn’t benefit from a strong consumer/end user preference, than the consumer will likely purchase the brand recommended to them by their sales person. This has incentive written all over it. And some combination of the following incentives will likely be a part.

Reseller Rebates: These are rewards targeting reseller entities (businesses) for attaining key milestones. Those milestones are usually sales related, but the trend is to consider soft goals as well.  These programs are typically either Performance Based (such as rewards for increasing sales over a previous period by a pre-defined percentage) or Objective Based, which the reseller earns by attaining a specific set of milestones.  Again, these milestones can be comprised of both sales goals and “soft” activities. ,For example, as soft goal may be attaining a specified minimum close ratio of “closed/won” on leads supplied to the reseller.. Reseller Rebates are among the most popular types of incentive programs because they motivate the entire organization—with executive management support—to attain mutually beneficial goals.

SPIFs paid to reseller sales reps or SEs: These programs are great because they reward the sale at the point where it’s needed most—at the point of transaction between a sales rep and their prospect.  They can be structured as either a tactical SPIF program (short term) to augment reseller rebates described above, or as an ongoing loyalty program in which you build a relationship with the Sales Reps and SEs directly through ongoing communication and interaction with the most influential of all roles in your demand chain. Despite the importance of this group, often  gaining access to this audience can be difficult as the reseller management would rather dictate sales  priorities to their team—and not one of their vendors.

End User programs (including: Cash-Back, free trial,  or Trade-in programs: While not a program targeting your resellers per-se, you are providing a tool that your resellers can use to close a deal—or sweeten an existing deal that will help get the prospect to say “yes”.  Like SPIFs above, this too influences the transaction at the point of decision—but because it doesn’t directly target the Sales Team, reseller management may be more open to supporting it. Often these programs are funding through MDF allowances, which brings us to…

MDF: This may seem out of place because MDF is usually associated with reimbursement for marketing activities that drive end-user demand. However, the trend is for MDF to fund a broad range of “partner enablement” activities such as demo units, training and other important activities that will better equip your partners to represent your products to their customers and prospects.

Deal Registration: I put this last, not because I don’t consider it an “incentive” (because it is), but because many marketers within commodity categories have evolved their once mighty deal reg programs into pure incentive programs. This is done by a gradual shifting  from the original intent of deal registration to either: a) gain pipeline visibility, b) motivate resellers to adapt more of a “hunter” mentality (vs farmer) or c) minimize channel conflict. The less effective your program becomes at obtaining one of these goals, the more it becomes just another incentive program. So, unless your deal registration program can be measured against one of these criteria,  the other incentive programs mentioned in this entry are easier to administer and more compelling for partners.

Why deal with the time and expense of putting these programs together? Why not just lower the price?

The reason is simple—lowering prices will usually just lower street price. A lower street price means you are promoting channel switching—not growing market share.  In the long run, it is better to have a program in place that will reward desired behavior at key points in your demand chain– motivating your partners to be advocates for life.

Assuring Effective Partner Lead Management Programs

As one of many tools available to channel marketers, lead management is categorized under the the broader umbrella of opportunity management programs (along with deal registration, referral management, and special pricing).  Within the context of channel marketing, lead management is intended to send leads down from the vendor to the designated  partner(s)  to assist in or complete the sales transactions.  It’s cousin, referral management acts as the mirror image by allowing 3^rd parties to send leads up to the sponsoring vendor (although effective referrals programs are designed to accept leads from a number of sources including customers, employees, affiliate organizations, in addition to just channel partners).  Combine characteristics of each of these into a single program and the result may be labeled as a bi-directional lead management program.  I spent the last couple of days helping one of our clients craft such a program and that process yielded some interesting observations and insights, which are the subject of this entry.

First, a single stakeholder on both sides should be assigned to monitor lead integrity and follow-through regardless of your lead distribution rules (1:1 or 1:many).  Ideally, this is a person that has a vested interest in the partnership.  Otherwise, leads may go to “never-never land” once they are acknowledged and accepted.  This is especially an issue in 1: many lead distribution models where leads may be accepted by any number of  sales reps within a partner organization.  Since it is likely that person isn’t 100% committed to your agenda, it is equally likely that getting status updates will be challenging at best and non-existent at worst.  If you are creating such a program for the first time, you may want to consider limiting the distribution of your leads to a single owner within the partner organization, and having that person solely accountable for updating lead status—IF tracking is important to you, and it should be.

Lead dissemination rules and follow-up processes may be very different between partners, products, and sales models. For instance, desired partner behavior is going to be quite different  across these distinct sales scenarios:  a joint sales opportunity, if you are leading the sale, if the partner is leading the sale, or if the partner is simply providing a fulfillment function for a customer you have basically already pre-sold.  Assess which of the various models apply to you, and design your program to address all those pertinent.

Have a clear definition for expected lead quality that is mutually understood.  Are leads pre-sold?, pre-qualified? Or are they simply “inquiries”?  Rules must be clearly defined and expectations maintained on both sides.  For instance,  If you are getting leads from partners in a bi-directional model,  and those partners are compensated for closed deals that you make on those leads, what is to keep them from submitting the phone book in hope that you’ll close “Something”.  Using this example, you’ll likely label their leads as “useless”, lose interest and in them  and won’t follow-up anymore—ultimately such behavior will damage the partnership. The same is true in reverse for the leads you send your partners. One way to overcome this is to monitor the lead conversion ratio to assure a predefined close ratio is maintained.

Design  a closed-loop process for lead tracking throughout the sales cycle to understand the programs overall  ROI and to demonstrate the value of the program to your partner community. Once the lead is received by your partner organization, there is often no incentive for them to update lead status on your system unless there is a “carrot” or “stick” in place.  Commissions and SPIFs may be a good incentive to update closed/won deals,   as can reconciling POS sell-through data with lead information provided to the partner.  However, neither are effective in helping you to get updates at various mid points in the sales process (for long sales cycle products), or to learn the details of “closed/lost” leads.  This is where you either have to a) get creative with your “Carrot” and “Stick” options, or b) have someone continually involved who has a vested interest in closing deals for your products. In the case of the latter, this can be either a CAM or Program Manager (employed by you), or a partner relationship manager (employed by your partne)r who has a vested interest in growing their business with your partnership. Another score for the first recommendation in this listing.

Leverage existing processes where possible—for you and your partner.  Opportunity management programs of any sizable scale are facilitated through software, either resident within CRM systems, or as point-based tool sets.  That software represents yet another login requirement on behalf of your partners. Because your partners have to adapt to their own systems (as well as those provided to them from other vendors/partners) adaption to your systems and process is going to be barrier.  An entire blog post—or even white paper—can be devoted to the many ways this can be addressed. Possible solutions are program-centric (incentives, program oversight, etc.) as well as software-centric (SSO, custom integrations, etc).  Components of both will likely be needed to promote system usage.  Think about it, though, in the context of a bi-directional lead management program, are  you really going to want to capture and update leads on separate systems provided by your various partners?

As partner channel models and segmentation schema gets more complex, so does all the rules surrounding your opportunity management programs in general, and your lead management programs in particular.  Continually reviewing and updating your programs to adapt to these changes is among the many things on your “to do” list, and another way to add value to your company and partner community—and hopefully add some job security for you.

Co-op or MDF? Which is Better?

Co-op or MDF?  As a category, they are referred to as promotional allowances. Regardless of the structure, promotional allowances are the #1 most utilized channel program among vendors today—and the most favored among partners—according to a recent proprietary survey.  As for program structure, the trend is moving away from co-op to MDF as observed by our clients and prospects.

Why? Is this a good thing?  Before we answer that question, let’s do a level-set on the working definition of each:

Co-op Programs are “accrual based” and as such are awarded to channel partners based on sales history—generally as a percentage of prior sales.

MDF Programs are more forward looking, and as such allocations are discretionary because Partners are awarded funds based on anticipated future behavior.

So, with that behind us, let’s go back to the original questions: Is moving from a Co-op to MDF funding model a good thing?

Once again the answer is: “It depends”.

My perspective is that most people are actually making the shift for the wrong reasons.

Proponents of the shift to the MDF model say they are doing so because their channel partners feel that Co-op is “an entitlement”. Further, the vendor often feels that they are not getting proper ROI from the program expenses.  I say: if those are the motivations for change, then simply switching from a co-op funding model to an MDF funding model isn’t going to solve your problem. This is true for several reasons:

1)   If you are going to issue MDF funds, and tell your channel what those funds are in advance, then they are still going to perceive it as “an entitlement”—regardless of the funding model.

2)  If you make the shift but DON’T tell the partner’s their balance in advance because you believe the funds may be truly distributed on a discretionary basis, then you are in danger of violating the Robinson-Patman act. The act basically states that all competing resellers must have the same access to funds on a proportionately equal basis. So violating a federal law may not be a big deal to you, but maybe your “powers that be” have a different opinion.

3)   If you don’t feel that you are getting appropriate ROI from your program, then simply changing the funding model isn’t going to change that either—you need to revamp your program with a new set of guidelines that makes it accountable for reimbursing for mutually beneficial activities.  Simply changing the funding model isn’t going to result in improved ROI from your program.

Therefore, “lack of ROI” and “avoiding Partner entitlement” are not reason enough to make the switch in funding models.  Addressing those challenges will require other modifications to the program —and most of those can be made to the co-op funding model with similar outcome.

Another perceived advantage to MDF is that the overall budget can be more flexible, compared to a co-op program where allocations are somewhat locked in a fixed percentage of sales.  While on the surface budget flexibility appears to be a huge benefit, in reality if your partners are used to getting funded at a level of  “$X”, should that allocation be reduced drastically (because the “powers that be” lowered the overall budget) it would likely result in a negative reaction from  your partner community. So this may not be as big an advantage as your finance people would like to believe.

Still another argument for switching to an MDF model comes from another trend: the fact that today most of the vendor’s reimbursement dollars are funding “business development” activities, versus “lead generation” activities.  Specifically, partners and vendors alike are using the majority of their allocations to fund near-sales activities and partner enablement activities such as customer events, product champions, demo/seed units, training and more. Many of these activities may require more scrutiny before funds can be released—a perceived benefit to an MDF program.  However, we are a proponent of “clear guidelines” for all activities—and if those exist, approving such activities for reimbursement wouldn’t necessarily require such scrutiny.

My POV on the appropriate funding models?

An argument FOR a co-op model is that funding allocations are predictable for the partners.  As a result, a partner can plan future activities with a degree of confidence that the program costs will get reimbursed. If your guidelines are appropriately designed, you should be confident that the funding will be directed to mutually beneficial activities.

Conversely, a big advantage to the MDF model is that in highly dynamic markets or when supporting early lifecycle products, MDF allocations may be the best way to help achieve future goals because past sales behavior is not the best measure of what should happen in the future.

Another approach that should be considered—especially among larger vendors with a large product portfolio—is a hybrid model offering BOTH co-op and MDF funding. This model would direct co-op funding to traditional marketing and lead generation activities that are classified financially as “marketing expense” line items. This would encourage partners to forward plan for sales and marketing activities supporting mature products.  Conversely, the MDF funds would be directed to contra revenue activities that focus on business development or to support early lifecycle products to create traction at that point in time when it’s needed the most.

Net/Net:  there is no one solution—supporting my belief that quality channel marketing is an art form.

Is MDF your most powerful channel program?

In the past, I have referenced a proprietary study performed by CCI that compared the attitudes between vendors and resellers against a variety of channel program offerings.  (For reference, this study is entitled: “Channel Incentive Usage Study” published by CCI earlier this year.) The programs evaluated within that study spanned those that are typically offered to the channel by vendors, including: MDF programs, SPIF programs, rebates, deal registration, marketing support, Leads, training, and more.  Interestingly, of all the programs offered, the largest disparity between vendors and partners in ranking “…the relative effectiveness of the program in helping you to attain your business objectives” was earned by MDF programs.  Specifically, while channel partners by and large perceive MDF programs as being a critical driver of their success, many vendors don’t perceive their MDF program as being effective in helping them to deliver key business objectives.  This is made even more interesting as MDF is ranked as the single most popular channel program by vendors.  That’s too bad that many don’t view it as effective, because to them I say: “You don’t get it”.  And I believe their perception is largely due to the fact that MDF is likely viewed as a cost of doing business (“because their competitor offers it”)—rather than what it really is: a “Channel Enablement Tool”.

Once it is accepted that MDF is, in fact, an enablement tool for partners to provide financial assistance across a variety of pre-sales activities to better equip them to be more effective at every stage of a sale, a wide ranges of options open up.  What’s more, the activities you are funding should be jointly aligned with your own GTM initiatives, as that is the key to improved ROI. This not-so-subtle distinction that MDF is an enablement tool funding pre-sales activities is important because most other incentive programs provides financial assistance  (or rewards) to the partner after the sale has been made. As such, think of your MDF program as being an investment in the partner to make them more effective than they otherwise would have been without it. So, while many people still perceive of MDF as a “Marketing Fund”, this is really a limited view– limited even more so by the lack of resources most partners have to be effective at marketing (which are little to none).

Despite their lack of consensus on the importance of MDF funds, partners and vendors alike seem to agree on that they perceive are the most effective use of MDF funds. The resulting list of “effective” activities named by both parties has little to no correlation with what most would consider traditional “lead generation” programs. That list of the “top 5” most effective reimburseable activities for an MDF program as expressed by BOTH vendors AND channel partners are (in no particular order): Training and Certification, Demo Equipment/Seed Units, Events, Trade Shows, and Incentive Programs (end-user purchase incentives as well as Reseller Rep sales incentives).  The first dedicated lead generation activity that shows up on either list is telemarketing—listed as #6 by both audiences.  To be clear, my point is that to limit MDF spending to traditional marketing is limiting the potential of the fund to help the partner be better equipped for the sales engagements they do get. [Some Vendors (like Microsoft) use Co-op programs to offset their partners marketing expenses, and MDF to fund the other aspects of go-to-market readiness.] In this context, MDF can influence the entire spectrum of go-to-market actions that are required to optimize your partner’s success—and each dollar you spend can be measured, and attributed, to your own GTM initiatives. In contrast, while deal registration programs can influence a sale in advance of the transaction, that influence is limited to a single transaction—not an entire go to market approach.  This is where the strength of a good MDF program can really shine.

With luck, your MDF program will become an evergreen resource for partner enablement that you can take to the bank.

To download the report on the partner/vendor preferences stated above, click here. And for resources on how to improve the ROI of your MDF program, visit the resources section of our website at www.channelmanagment.com