by Martin McNally
Director of Product Management, CCI

Like any business initiative, channel incentive programs must be measurable to determine their impact and value to an organization. Data is power, provided that it is explainable and actionable. ROI's are critical success factors and you have to measure them before you can use them. Given the complexity of incentive programs, what attributes are most critical to measure to track program success? Regardless of measurements you use and the weight you put on each one, it's essential to understand that each measurement is likely influenced by another.
We gather metrics at a variety of levels to gain ROI insight. We must map them to one another to garner the best intelligence - tactical to business, business to program, and many relevant permutations among and within the chain.

As discrete as a single measurement may be, it is not an island. There is a ripple effect. Just as a sales transaction is the result of multiple activities performed by a channel partner, so too is attainment of another business outcome - ROI. One metric, with its own ROI, feeds another metric and influences that ROI too. You must anticipate and manage these relationships to make best use of your collective ROI.

Once you have defined your ROI metrics and measured their results, piecing them together is the next step. Tactical metrics are tied to individual marketing activities conducted by channel partner. Such as: How many opened your email campaign? How many attended an event? How many resulting demos were scheduled? Business metrics are separate from tactical measurements, though both are equally reliant on the same activities. As a separate measurement, a business metric is made possible via the aggregation of multiple activities. Aggregate and analyze tactical metrics to identify, for example, product line or business-level achievement such as new customer count or revenue growth. Then, take the next step to determine how all these indicators enabled you to meet your program goals.

ROI should be defined and measured at multiple levels - across your program lifecycle and among its many moving parts. If one metric is not generating the desired results, or more fundamentally is hard to measure, look underneath it or alongside it to determine if other dials can be adjusted too.

Enough about me, lets transfer the idea of complacency to you now. It amazes me how many marketers-particularly those in a dynamic industry like technology-maintain their channel programs year over year and expect better results. If you fall within this category, I remind you that it fits the definition of insanity-"doing the same thing over and over and expecting different results". So, I guess it's time for you to overcome your complacency.

Face it, your business objectives change, the economic environment changes (or so we hope), your competitors certainly aren't sitting still, why are you doing the same ol' same ol'? In fact, we recommend reviews no less often than annual with a schedule for quarterly enhancements likely. Yet, it's common that I see programs carry over with minimal revisions 3-5 years or more.

If you answer "yes" to any of these questions, it's time to review and revise your channel program NOW.

• Are you introducing new products or services?
• Do you expect changes in your channel composition this year?
• Has your sales goals changed since last year?
• Do you expect to recruit or release partners this year?
• Is your staff more or less capable of managing the program than last year?
• Is your competition sitting still?
• Are you confident that you can evaluate-and indeed report on-- the true ROI of any one of your programs?

Ok, then. You know who you are. Your channel programs are not a cost of doing business; they are your competitive advantage. I have to believe that, I'm in the business of promoting that. My promise to you in return is that many more articles will come on this site that will help you simplify the process and guide you through the right decisions-really. Stay tuned.

What struck me in this survey were the repetitive comments on the impact of channel program ROI. From measurement to trends to best practices, the ROI dynamic appeared multiple times as a response. Here are some of the pertinent survey questions:

Q. How do you measure the success of your MDF/co-op program?
A. ROI on activity.

Q. What measurements are important to your organization?
A. ROI, based on revenue.

Q. What are your biggest challenges with your MDF/co-op program?
A. Measuring ROI of activities.

Q. What have you done to overcome these challenges?
A. Implemented requirements for partners to communicate ROI.
A. Understand the importance of being able to demonstrate ROI.

Q. What innovations would you like to integrate into your MDF/co-op program in the future?
A. Better metrics/tracking of ROI.

Q. What changes have you made in your MDF/co-op program in the past 3 years?
A. Heavy ROI scrutiny-a good thing.

Q. What impact have these changes made, if any?
A. Better ROI measurement.

Q. Name one change to your MDF/co-op program that has made the most positive impact?
A. Focusing on ROI.

Q. Name one change to your MDF/co-op program that has made the most negative impact?
A. Funded programs that did not yield an ROI.

Q. 33% of respondents feel pressure from management to discontinue their MDF/co-op programs in the future. Why?
A. Lack of clear ROI.

In these challenging economic times when companies are scrutinizing every internal investment dollar, the last question and response is particularly relevant. Are you currently being asked to justify the value of your channel program? Do you have the ability to report in a timely manner on the metrics which tie your program objectives and activities to positive results? When push finally comes to shove, will your executive management team support your program because you were able to demonstrate a greater ROI versus another company program? It is not an understatement to say that the survival of your channel program may ultimately depend on how you answer these questions.

It amazes me how often manufacturers come out with new incentive programs which are only "Stacked" on top of existing programs to provide added discounts to the partner. This might be OK as long as you're accounting for them and the actual cost of sale is profitable. So, you don't think this is happening to you? Take this test:

First: Do you offer 2 or more of the following channel programs:

• Co-op/MDF
• Performance Rebates (or "stretch goals" as we refer to them)
• Channel SPIFs or other loyalty program to sales reps?
• End user trade-in
• Leads
• Opportunity management tied to incentives for closed sales
• Champion employee reimbursement programs
• Training and certification
• CAM or SE sales support

If you're answer is "no", you're done with the test (and you're missing out on some real opportunities-but that's another entry)

If your answer is "Yes", then proceed through the following questions:

1. Can you isolate the cost of all these programs to individual resellers?
2. Are you able to compare those costs with the revenue they generated?
3. Do you have an established set of guidelines and best practices for each individual program? IF so, are they practiced throughout your channel organization?
4. Are you able to evaluate the impact of each program on sales or the reseller's growth over time? (as measured in isolation, or relative to their "Peers")
5. Do you know how your partners perceive the effectiveness of these programs on their business?

If you answered "no" to one or more of the above, you have a real opportunity to improve the efficiency and effectiveness of your channel investment--the technology does exist people. But, don't worry, you're not alone. As a result, I've heard of many instances where resellers make more money "buying" rather than selling some products by selling it at their "cost" then making up the margin through other incentives. In the meantime your cost of channel sale is so high that you're forced to lay-off staff in this economy. Is that really a win/win scenario? I enjoy "stiring the pot" with these blog entries, so whether you agree or not, I'd love to hear from you either way.

by Craig DeWolf, CCI

ROI= Return on Investment (used in marketing and other business disciplines to determine how much revenue an specific capital outlay returned)

RBI= Runs Batted In (used in baseball as a measure of how many times a player drove a score when batting, either on his own or from a runner on base)

Other than the fact that they both are statistical measures, there is seemingly very little in common between these two metrics. Well, let me try and build a bridge for you...

The Oakland Athletics are a Major League Baseball team that won more games in the 2000-2002 seasons than most other teams of the era, an accomplishment that's even more astounding when one realizes their team salaries at the time was a mere $41MM (miniscule, considering the Yankees and the Red Sox were spending over $100MM the same period). How did they do it? With a process call Sabermetrics: understanding the real drivers of performance and applying those drivers to achieve an objective. (Hint: That is your "Bridge" between ROI and RBI).

In the case of the Oakland Athletics, Billy Beane, the general manager-along with his statisticians-looked at all the common elements of winning games and winning teams over several years. In the process, he discovered that drivers such as "on base percentage" were actually more indicative of a good offensive strategy than the number of home runs, or RBIs. What Billy essentially discovered is that while the latter two examples are more glamorous stats that may make a player more expensive, they do not necessarily make a team more likely to earn a "W" in the revered "Win/Loss" statistic. Billy's understanding of the correct drivers to a winning team - and then find the talent that can deliver those drivers, and more impressively at a low cost-made him a legend in modern baseball. His process of Sabermetrics is now commonplace to the game. However, this column is about marketing, not about baseball, so those wishing to learn more can get the book "Moneyball" by Michael Lewis. Let's go back to Marketing....

As stated earlier, the Number 1 question we get about Co-op/MDF programs in specific (and channel programs in general) is "how do I know if it's driving ROI?" Well, one way to find out is to use POS data, create segments of your channel population clustered by common characteristics, and separate each cluster into two equal size groups between those who do use Co-op/MDF (the test cell), and those that don't (the control cell). We'll bet that the ones who use their allowances have demonstrated higher levels of growth with less volatility over time. However, this statistical approach may be impractical for many as a true measure of ROI for a variety of reasons.

Alternatively, using an approach more common to the Oakland A's example, begin by identifying all the correct channel sales/marketing behaviors that are common to a "winning reseller" and be sure to direct your program to reward resellers for those behaviors. For example: Early in my career I was the Advertising Services Manager for a major floor covering manufacturer. And while large, we were #2 in the industry. We were looking for ways to help make our Co-op program more effective in driving sales (better ROI if you will). So this is what we observed within our industry:

• Seasonality was skewed to Spring (home remodel season) and fall (pre-holiday)
• Major promotions from all manufacturers were often directed toward these times.
• Consumers were more likely to "trade up" during promotions to a higher grade of floor covering than at other times.
• Our share of voice as an advertiser was dramatically lower than competition during that period because we didn't have the budget that the #1 guys did.

How did we have applied Billy Beane's approach to achieve our goal? By:

• Offering incentives to Dealers to concentrate their Co-op spending during these periods.
• Focusing the spending to promote high-end products, and to use certain media types that helped to reinforce our branding and share of voice (magazines, broadcast, and other high impact intrusive media).
• Assuring that all channel advertising was "on message" with branding

The result? We achieved record sales figures during these critical periods-with less spending in national advertising through more "focus" of co-op expenditures. While it may or may not be difficult to correlate co-op spending to sales to "prove" ROI, we can easily measure the contributing drivers:

• Products Promoted
• Media Types
• Media Weights
• Promotion Periods
• Creative/Messaging
• Share of voice

These then became the key metrics that were considered the success components of ROI-or, if you will, our version of Billy Beane's "On Base Percentage". Like Billy, we looked at these, and other contributing metrics, and continually strived to improve them season after season. With this somewhat obscure comparison between marketing and America's pastime, I urge you to evaluate the ROI of your own program by reviewing the success drivers of your business, then focus your program components to reward partners for performing these activities. After doing so, you and your partners will be laughing all the way to the bank, and you'll have clear, defensible metrics that will substantiate the ROI in your program.

Craig DeWolf is Vice President of Sales and Marketing for CCI.

Craig's extensive experience spans over 20-years, across a variety of industries and distribution models. This background has given Craig an excellent perspective of the issues facing marketers and their distribution partners, and the solutions that will make them mutually successful.

by Craig DeWolf, CCI

The #1 question I am asked by clients and prospective clients alike has been "How can I measure the effectiveness of my Co-op (or MDF) program?" Interestingly, there are more answers to this question than there is space in this blog. However, in the interest of brevity, the short answer is below:

It depends.

While that response is appropriate for most marketing related questions, my guess is that it didn't completely satisfy your insatiable curiosity as to the answer.

So, here's the longer response (you asked for it).

Each objective should have measurable goals. This becomes the basis for your program. As simple as it sounds, when I get asked the "Measurement" question, my response is another question: "what are your objectives for the program?" Interestingly, the response frequently is: "I don't know." While elementary, the appropriate follow-up comment is: "Then how do you know what ‘effectiveness' is if you don't know what your objective is?" If you treat your program simply as a cost of doing business, then that's what you'll get-a program that sucks money from your marketing budget without providing any realized marketing benefi t.

Step One: Identify Objectives
So, as you probably guessed, the fi rst step in the process of measuring the effectiveness of your funding program is to defi ne your objectives. While this can include something as broad as "increase sales", it can also include intangible objectives such as "Increase partner/retailer loyalty." Either example has ways to measure the effectiveness against goals, albeit very different. The fi rst example would rely on a more quantitative approach of measuring sell-though, while the second example may include (at least in part) a more qualitative approach- such as a survey. Objectives may be either long-term (ongoing) or short-term to address certain market conditions.

Typical objectives for your co-op or MDF program may include one or more of the following:

» Increase sales overall
» Increase sales of specifi c products
» Increase partner share of voice
» Reinforce brand messaging
» Focus spending behind specifi c products, media, or events
» Increase utilization rates (overall, or from select channel partners, or from a select geography)

While these might be some of the more common objectives, there are many, many more. Each example is measurable, and you can choose more than one objective. Just be sure you have the strategies in place to attain each objective assigned to your program.

Step Two: Identify Goals
The second step is to identify goals for each objective and a basis for measuring progress. As you can see from simply reviewing the above list, each objective will require different metrics. While each objective will have a critical KPI (Key Performance Indicator), each strategy deployed to attain any one of the objectives will require associated metrics as well. So don't expect to have this fleshed out on the back of a cocktail napkin after a brief 5 minute discussion at your local watering hole. Completing this step takes some consideration. Take my word for it.

Step Three: Set a Baseline
The third step is to determine the current baseline for each goal which will be used as your starting point. It's often said, "If you don't know where you are now, how will you know how to get where you're going?" Truer words have never been spoken. By defi nition, all goals are measurable. So begin by identifying your starting point. ‘Nuff said.

Step Four: Set Up Reporting
The fourth step is to set up your reporting to identify trends over time. This will not only help you track progress, but it will help you understand the rate of change over time as your strategies evolve. It is worth repeating that you should track progress for individual strategies as well as tracking progress against each objective. It will be these tactics and strategies that you will be adjusting over time to accelerate the attainment of each objective. So, the whole effort is moot unless you track the individual strategies in your quest to deliver a more effective program.

While this sounds simple enough, apparently it isn't and if you're not doing this now, you're not alone. The good news is that it's not too late to start. I'll explore in future blogs ways to assign and measure specific objectives.

Craig DeWolf is Vice President of Sales and Marketing for CCI.

Craig's extensive experience spans over 20-years, across a variety of industries and distribution models. This background has given Craig an excellent perspective of the issues facing marketers and their distribution partners, and the solutions that will make them mutually successful.