Best Practices for Channel Incentive Programs

[Pages:21]Best Practices for

Channel Incentive Programs

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TABLE OF CONTENTS

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Types of Incentive Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 What Channel Partners Want . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Obstacles to Success . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Laying a Proper Foundation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Modeling and Testing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Managing Programs Automatically . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Summary and Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

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Introduction

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INTRODUCTION

Manufacturers and vendors rely on financial incentive programs to motivate their channel partners. In turn, channel partners (resellers, distributors, etc.) rely on these programs for revenue. According to one source, manufacturers spent $55 billion USD in channel incentive programs in 2012, out of a total channel marketing budget of about $69 billion USD. Thus, incentive programs play an important role in marketing to the channel.

Despite their potential to improve channel performance, however, incentive programs often fail to live up to expectations. This shortcoming results from various causes, such as poor design and execution. But a major shortfall can be attributed to inadequate data.

Missing or inaccurate data makes it impossible to tie incentives to actual performance. It leads to slow and error-prone payment processing, and prevents the calculation of program ROI.

With so much at stake, manufacturers must take a vital interest in perfecting their incentive programs.

Our purpose here is to examine channel incentive programs for best practices1. What types of programs are manufacturers and vendors using today? Which programs do channel partners respond to, and why? How do you measure success? How can programs be improved?

We'll answer these questions and more, drawing on experience and research conducted with practitioners who derive a majority of their income from the channel.

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1. "What makes a channel incentive program successful in the new channel?" White Paper,

Types of Incentive Programs

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TYPES OF INCENTIVE PROGRAMS

Incentive programs can be categorized in a number of ways. A recent Channel Data Management survey conducted by Baptie & Company and Model N2 among 85 technology manufacturers listed the following types of partner incentive programs:

? Sales quota attainment ? MDF/Co-op ? Product based programs ? Special pricing

? Ship and debit programs

Respondents were asked to rank which types of programs they favored. MDF/Coop programs topped the list, with nearly 72% of respondents running these types of programs. MDF (Marketing Development Funds) are monies given by manufacturers to partners in advance of performance. They are intended to encourage a specific behavior, such as marketing tied to a particular product or service. Coop programs award monetary credits to partners for sales that result from marketing a particular product or service. They are also called "trade promotional allowance" programs.

In this same survey, more than half the survey respondents also reported running Special Pricing, Product-Based, and Sales Goal Attainment programs. The least popular type of program, run by less than one quarter of the respondents, was the Ship and Debit program. A Ship and Debit program is essentially a Special Pricing Agreement.

The manufacturer offers very low pricing to a distributor to serve a specific end-customer. The distributor earns a "lower-than-normal-margin" price by providing extra services to the customer.

2. 2014 Channel Data Management Survey Results: Using Channel Data to Manage Partner Programs, White Paper,

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TYPES OF INCENTIVE PROGRAMS

In a separate survey conducted among vendors and partners3, incentive programs were classified somewhat differently, as follows:

? Performance based ? Big deal discount ? Volume rebates ? Short-term, price-based ? SPIF ? Non-payment incentive ? MDF

SPIF (Sales Performance Incentive Fund) and Rebate programs could be classified as "Sales Quota Attainment" programs, where the manufacturer rewards the distributor (company or salesperson) financially for selling a certain amount of a product or service.

Other types of incentive programs include loyalty programs, which are designed to build relationships by rewarding desired behaviors over the long term, and sales contests, which include the element of chance to earn a reward.

In the previously-mentioned survey, rebate programs were further classified by manufacturers as follows:

? Performance based ? Objective based ? Activity based ? Program based

Manufacturers favored performance based programs, for example, those using metrics such as year-overyear growth or sales quotas. An example of an objective based program is one using new customer acquisition as a metric. Programs that allocate MDFs are an example of activity-based programs, while a ranking system such as Bronze/Silver/Gold describes a program based plan.

Manufacturers view incentive programs as motivators to encourage their channel partners to sell regularly on their behalf.

Most of these programs rely on financial compensation, hence the importance of accurate, timely data to gauge performance.

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3. Silicon Valley Research Group, 2012

What Channel Partners Want

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