GLOBAL CHANNEL MANAGEMENT 8KEY. Elements. Behind Successful MDF Programs.

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1 CCI GLOBAL CHANNEL MANAGEMENT 8KEY Elements Behind Successful MDF Programs www.

2 Contents INTRODUCTION 3 KEY ELEMENT #1 PROGRAM ELIGIBILITY 5 KEY ELEMENT #2 PROGRAM PERIOD 7 KEY ELEMENT #3 HOW FUNDS ARE EARNED 9 KEY ELEMENT #4 ELIGIBLE PRODUCTS 12 KEY ELEMENT #5 ELIGIBLE ACTIVITIES 15 KEY ELEMENT #6 REIMBURSEMENT PERCENTAGE 18 KEY ELEMENT #7 CREATIVE REQUIREMENTS 20 KEY ELEMENT #8 REIMBURSEMENT METHODS 23 CONCLUSION info@

3 Introduction AIM HIGH Comprehensive promotional allowance programs are based on eight elements. By annually addressing key questions about these elements, you can construct a solid foundation for comarketing efforts with your channel partners. The elements include: 1. Program Eligibility 2. Program Period 3. How Funds Are Earned 4. Eligible Products 5. Eligible Activities 6. Reimbursement Percentage 7. Marketing Execution 8. Reimbursement Methods For best results, you should build programs that support not only the go-to-market behaviors of a marketer and its channel partners, but also the buying process of the consumer. When taken as a whole, a promotional allowance program based on these elements can be greater than the sum of its parts, providing your company with well-engineered sales and marketing programs. Your goal in using these elements should be to create programs that meet or beat your competition. When properly-designed, these programs can give you that all-important edge in the marketplace. By annually addressing key questions, you can construct a solid foundation for comarketing with your channel partners. 3 info@

4 ANNUAL REVIEW IS ESSENTIAL While you can use the contents of this ebook to create a new program, our focus will be on program review. We firmly believe that best results can be achieved only through careful, regular assessment of how well your programs track across these elements. Only by such review can you be certain that your program is aligned with the goals of the manufacturer, the go-to-market (GTM) strategy of the channel partner(s), and the buying behaviors of the ultimate consumer. Such regular review is particularly important in technology-related industries where products, purchase processes, and even channel partners change with increasing frequency. NOT A BURDEN BUT A TOOL Regardless of how they are implemented, the MDF (Marketing Development Fund) is a large expense for most channel marketers. In fact, they can represent as much as percent of the total channel marketing budget. But rather than treating these programs as merely an expense, think of them as one of your most powerful business tools to reach sales and marketing objectives. When reviewing each of these eight elements, do so with an eye toward how they relate to the GTM strategies of your channel partners, the programs offered to them by your competitors, and your own sales and marketing goals. THINGS CHANGE Be prepared to adapt your programs to meet the evolving needs of individual partner segments. Design programs that align with and facilitate your partners unique GTM strategies and how each partner promotes itself and interacts with its customers. LEGAL SETTING Note that the Federal Trade Commission (FTC) considers all promotional allowances to be a form of wholesale price discounting. FTC rules governing these allowances were established by the 1936 Robinson Patman Act. The purpose of the Act, which is enforced by the FTC, is to prevent price discrimination and promote fair trade between channel intermediaries. In summary, the Act states that, Competing channel partners must be offered similar programs on a proportionately equal basis, in which: Competing: channel partners that might be targeting or seeking access to the same consumers. Similar Programs: programs don t need to be identical to fall under this guideline. You may change parts of a program to address the needs of different channel segments. But if the program is functionally the same as other such programs, it is considered similar. Proportionately Equal: rthe ability to scale a program based on the size and potential of a given channel partner. For example, a program that earns 3% in promotional allowances complies with the guidelines even if one channel partner earns $100,000 and another earns $1,000. The amount earned must simply be proportionately equal based on each partner s prior sales volume. 4 info@

5 1KEY Element number one

6 Program Eligibility What are the specific requirements or thresholds your channel partners must meet to be eligible for funds? Usually, a channel partner must simply be authorized to be eligible. But some vendors, particularly those with complex channel models, have additional requirements such as minimum sales thresholds or related service/support capabilities (to which many vendors are adding business development and marketing capabilities). Be sure that you establish very clear eligibility requirements. Best Practice: CCI recommends that you make your promotional allowance programs available to all of your channel partners, no matter how small they may be. As long as the partner can meet qualification criteria, get them started on a program, then scale benefits as the partner grows. (Depending on your industry, you may need to establish eligibility requirements that exclude unauthorized grey market products.) Trends: Things change, but some things seem to change more than others. As technology evolves, so do the capabilities needed to support new products and services. In the past, most of those capabilities had to do with the vendor s technology. But given changes in the buyer s journey, it is vitally important that your partners demonstrate business development and marketing abilities. These days that means partners must be working on their digital marketing skills including social media. Make sure your partners keep up to date with both the technical certifications and marketing skills they need to communicate with and support end users. In conjunction with the push to make partners better marketers, vendors are looking for ways to get better at measuring a partner s potential. There are some great tools out there to help you scorecard partners on how well they perform in both business and technical areas, we recommend taking a look at the Sirius Decisions research brief on partner assessment LEGAL CONSIDERATIONS There are no direct requirements that prevent you from establishing different eligibility standards for different kinds of programs, as long as the standards are applied equally to all channel partners using the same program. 6 info@

7 2KEY Element number two

8 Program Period How long can your partners use their allotted funds before the funding expires? Funds are usually set up on a quarterly or annual basis. For annual programs, the program period usually matches the calendar year. This may or may not coincide with the marketer s fiscal period. But it often aligns with how channel partners plan promotional events and programs. BEST PRACTICES: Make sure your program period aligns with your partners needs. Three elements can drive the selection of the correct program period: The length of the planning cycle as required by your channel partners. The seasonality of your product. Your desire to focus fund investment during key promotion periods. Trend: More B2B clients are trending toward quarterly planning periods, in particular with proposal-based MDF, however annual program periods remain the standard for strategic investmentslike funded head and for consumer products in the retail channel. Legal Considerations & Ramifications: There are no direct requirements that prevent you from offering one period over another to different channel segments, as long as the amount offered is proportionately the same over an annual period. 8 info@

9 3KEY Element number three

10 HOW FUNDS ARE EARNED: How do you want to structure your program? A true MDF program (proposal based), versus a co-op program (accrual based), relies on discretionary fund distribution based on future potential. And while a pool of potential funds for the partner can be created based on a type or level of performance, the partners do not have a contractually committed balance to spend, compared to a co-op program, which is based on a guaranteed earned accrual as a percentage of past purchases. PROS CONS MDF Discretionary funds issued based on future potential. The available funds are often not announced to channel partners in advance, but negotiated to achieve specific goals. Often require less complete proof-of-performance (POP) documentation than traditional co-op programs. Funds can be disseminated more dynamically to address the needs of rapidly changing markets or industries. Typically used for activities categorized as contrarevenue expenses by Sarbanes Oxley guidelines (aka SOX). Pre-approval processes are more rigorous for channel partners and program administrators alike. More susceptible to abuse of the guidelines set forth in the Robinson Patman Act (see legal considerations under Program Eligibility). CO-OP Marketing allowances are accrued as a percentage of past sales performance usually 1%-5%. Guidelines are welldefined, with comprehensive POP requirements. Your channel partners can forecast the funds, which makes it easier to plan programs in advance. Typically require minimal pre-approval administration, fostering ease-of-use. While not a requirement, more rigorous proofof-performance (POP) documentation is typically required for each activity. Ideally suited for activities qualifying as a marketing expense. Viewed as an entitlement by marketers. Harder to control/ modify distribution of funds as needs change throughout the program period info@

11 Best Practice: MDF should be all about growth and how to enable partners to be successful. You want partners that are motivated to take funds and invest in their businesses. Focus on business development activities (demos, training, seminars, funded head in a sales or technical role). Trends: Recent data clearly shows that the market is shifting more funds to proposal-based, discretionary MDF initiatives. The question is whether the partner can see a potential accrued pool of dollars based on accomplishing some sales or enablement criteria, or are they asked to create a plan solely based on what they and their CAMs or PAMs believe will be successful? Many vendors are moving to hybrid programs that include both MDF/BDF (Business Development Funds) and more traditional programs with accrual-based elements. While the goal is to get partners to engage and present what they believe are the best campaigns, some programs are working well as accrual based for partners that are either skittish or adverse to change or risk. Keep in mind that for some partners these programs, BDF programs in particular,may not be a good fit. Legal Considerations: The Robinson Patman Act applies to both MDF/BDF and co-op programs, requiring equal but proportionate distribution of available funds between channel partners. Deciding to assign funds under the more discretionary MDF model (as opposed to the fixed accrual of a typical co-op model) does not allow you to disproportionately distribute promotional allowances. NOTE: Under Sarbanes Oxley, you can designate some marketing costs as either operational expenses or contrarevenue. The choice you make can have a significant impact on corporate financial reporting especially with larger budgets. While operational expense is the preferred designation for financial reporting, you must follow strict guidelines to have them classified as such. Be sure you get pre-approval by both financial and legal stakeholders within your organization before you internally distribute rules about how to designate marketing costs. Pay special attention to proof-of-performance (POP) requirements for specific marketing activities info@

12 4KEY Element number four

13 Eligible products What are your company s guidelines for product eligibility? There are two components to defining a product s eligibility: Whether it qualifies for reimbursement (when advertised or promoted per the terms of the guidelines) or for co-op accrual (where a co-op program exists). Note the following considerations: CLASSIFICATION CONSIDERATION Often used to specify which products may be promoted. PRODUCTS ELIGIBLE FOR REIMBURSEMENT Occasionally, marketers promoting end-of-life products offer higher reimbursement percentage to eliminate stock by encouraging additional promotion. This may also be used as a basis for defining minimum advertised price between products, and setting reimbursement policies accordingly. Only applies to co-op programs, based on purchases or sellthrough of those products. PRODUCTS ELIGIBLE FOR ACCRUAL Varying accrual rates: Offering a more attractive accrual rate is often used as loading incentive to buy one product over another. This method of plus-up accrual is falling out of fashion in today s programs. May exclude more popular products or less profitable products from earning accruals info@

14 Best Practice: Regardless of product eligibility, your advertising policies should be as consistent as possible across all products, including product feature or copy requirements, illustrations, branding, and pricing policies. Consistency will make the programs easier for you to administer and more attractive to your channel partner users. Trend: Sometimes it makes sense to promote one product over others. This may be due to a product introduction or the end-of-life phase of a product s lifecycle. Special funds are often set aside as a short-term promotional incentive to focus promotion efforts during a limited time. These set-asides can serve as an alternative to varying reimbursement percentages info@

15 5KEY Element number five

16 Eligible Activities What sales and marketing program activities qualify for funding or reimbursement in the program? In general, the list of eligible activities usually includes some combination of marketing activities (for example, print or online advertising, direct mail, merchandising, digital marketing, etc.) and activities that promote sales development (such as training, demo equipment, incentive programs, etc.). Each activity should be accompanied by the program requirements and proof-ofperformance documentation necessary to qualify for reimbursement. Best Practice: Eligible activities should align with the go-to-market practices for each of your channel partners. And they should correlate with each phase of the consumer/end user buying process: awareness, interest, desire, and action. (Understanding these phases is a prerequisite to designing successful promotional allowance programs.) When marketing disciplines or buying processes vary between channel or target market segments, offer unique programs per segment. Trends: Many companies are adding digital marketing to traditional business development activities such as training and certification, SPIF programs, demo equipment, and product specialization. This is in response to the new buyer s journey, or what Google calls the zero moment of truth. The new online moment for the buyer comes right after stimulus. And while traditional marketing activities still make up the bulk of eligible activities, online business development activities continue to gain momentum. In fact, year by year, vendor organizations seem increasingly comfortable reimbursing partners for digital media activities. Many companies are requiring that up to 30% of activities are digital marketing based. This is particularly true for B2B marketers that need to support cloud-based products info@

17 There is no question that the cloud is accelerating this transition. Research shows that customers complete as much as 75% of the cloud-services buying journey (as opposed to 60% for non-cloud products) before reaching out to a salesperson. In this scenario, partners must have an active digital media web presence or they will fail to gain traction in this important market. It can be difficult to calculate the costs of implementing a digital media program, and its proof-of-performance requirements are nonexistent or vague. Some marketers, however, are moving ahead and providing their channel partners with digital media marketing tools such as Google AdWords, LinkedIn advertising, or YouTube videos and scripted content. Savvy vendors are collaborating closely with their partners to design, implement, and provide reimbursement for activities that work together to create comprehensive social media marketing strategies info@

18 6KEY Element number six

19 Reimbursement Percentage What portion of the cost of any given activity do you pay or reimburse to your channel partners? Typically, such reimbursement percentages vary between 50% and 100% of costs, although different percentages may apply to the production (such as ad creation) and execution (such as media placement) portions of a single activity. Reimbursement percentages usually vary between individual activities, but a single reimbursement rate may be applied to all activities allowed in the program. Best Practices: Trends: Consider lower reimbursement percentages for activities you find less successful, such as ad specialties (trade-marked coffee cups, pens, etc.). When more than one vendor is listed within an activity, divide the costs proportionately between them before you apply the reimbursement rate. Example: If a channel partner develops an ad that supports two different brands (one from you and another from a different company), the cost of the ad should be split 50:50. If your reimbursement rate is 50% on that ad creation, then you would pay 50% of half of the total cost, or a total of 25% of the overall cost. More desirable rates up to 100% are being applied to more desirable activities. Companies are also reimbursing partners for production or set-up costs. If you provide your partners with tools or templates (such as ad templates) to support a reimbursable activity, you can lower the reimbursement rate provided the partner uses those tools and templates. Many marketers are dropping reimbursement rates for ad specialties and other activities that don t directly contribute to lead generation or business development. Some are simply eliminating them from the list of eligible activities info@

20 7KEY Element number seven

21 Marketing Execution Have you established a clear path for partners to market to the end user? With through-partner marketing, this is being done in two distinct but combinable ways. The first is by providing partners with access to and guidelines for internal resources, the second is by leveraging third-party agencies Through Partner Marketing Agencies (TPMAs). VENDOR RESOURCES The guidelines you create may be provided to address any or all of the following: General branding rules that transcend all products and activities. This includes logo usage, colors, and corporate trademark representation. Product requirements that specify copy, trademark, copyright, and photo/ illustration representation for individual products. Activity requirements that define the copy, brand, or production requirements as they apply to specific activities, including everything from social media ads to truck signage. TPMAs No guidelines are necessary since all of the content is created and pre-approved for the partner info@

22 Best Practices: Either method needs to be easy to access and understand. With vendor resources, the creative requirements should be simple and clear. Tools that facilitate use of vendor branding like logos should be easy for partners to access online. Templates and examples should be available for each instance. With TPMAs, the majority of the work is done for the partner before they get to the site, so the focus needs to be on providing the right content for their GTM strategy and creating a process to measure investment and success. If done correctly, the integration of a fund management platform and a TPMA platform can greatly simplify MDF and provide more accurate ROI. Many vendors are going as far as supplying funded head or marketing concierge services to help augment partners marketing inadequacies. Trends: For many vendors the rise of TPMAs has made it possible to provided partners with simple and easy access to high-quality content and well-conceived marketing plans. The challenge, however, remains changing the partners behavior and getting them to leverage the tools that can make a difference in their marketing capabilities. To overcome this challenge, many vendors are utilizing a points-based system to modify partners behavior and reward them for participating in pre-approved plans. For other vendors, the challenges of digital marketing in particular has led them to supply funded head or marketing concierge services to help augment partners marketing short-comings. More and more vendors are providing a combination of both. Legal Considerations: The use of your brand by a channel partner is subject to legally enforceable trademark regulations. If a partner misuses your brand you can, at minimum, withhold reimbursement info@

23 8KEY Element number eight

24 Reimbursement Methods WHAT FORM OF REIMBURSEMENT WILL YOU USE? Reimbursement options typically include cash (usually issued as a credit memo but can also be a check, wire transfer or ACH). Which option you choose is typically a function of industry and/or channel practices. Best Practice Regardless of modality, payment is the trigger to encourage and reinforce good partner behaviors. The longer it takes for a partner to receive reimbursement, the less of a chance you have to create a mental association between reward and behavior. Schedule your reimbursements to be paid in 21 days or less of an approved claim. This will help your channel partners cash flow and encourage their continued participation in your programs. Trends While wire and ACH are replacing checks, the real change is in time to payment. Industry leaders are beginning to pay partners even faster in 14 days or less. There is also the ever-present discussion of program-centric versus partner-centric payments. Program-centric means that global partners assume the exchange rate float sometimes they get more and sometimes they get less. Partner-centric means that the partner is always reimbursed exactly what they spent in their local currency. While partner-centric is a better partner experience, it still hasn t found massive favor in vendor organizations because it is difficult for finance departments to forecast. Legal Considerations Your promotional allowance program represents an expressed contract between you and your channel partners. If you fail to pay, or pay late, you may be subject to legal action from your channel partner, assuming they have met all other terms and conditions of the program info@

25 Contact Us CCI Global Channel Management CCIC www. Conclusiion For best overall results, CCI recommends that you use the eight elements outlined in this ebook to structure annual reviews of your promotional allowance programs. Regular, structured reviews can: Connect With Us B l t Channel Champion Blog Channel Wisdom Podcast More ebooks The Magic Channel ROI Button The Essential Benchmarking Metrics for Successful Co-op & MDF Programs Regular, structured reviews can: Simplify your review process. Enable you to conduct your reviews quickly. Form concise benchmarks against which each partner s performance can be compared over time and against other partners. Help you track and support your partners progress toward building business development and marketing skills. Most importantly, the regular use of these elements in annual reviews can help you quickly reach actionable conclusions and define next steps to make sure that the guidelines you establish continue to match your company s goals and marketing evolution from year to year. Lastly, by providing you with a concise list of key elements of promotional allowance programs, CCI s Eight Key Elements Behind Successful MDF Programs gives you a simple, predictable way to track and, when necessary, help improve your partners performance over time info@

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