Optimizing ROI from your Co-op/MDF Program Your channel marketing program can be more than a cost of doing business. Start realizing a return on your investment. This ebook covers best practices and trends that impact the program design, measurement, and execution of your promotional allowance program. Whether your company currently has a program or is planning to launch one, the practices recommended here can be applied to help ensure optimal return on investment from your promotional allowance program. ebook from CCI Global Channel Management
2 Contents 3... Introduction 6... Chapter 1: Setting Program Objectives 8... Chapter 2: Selecting Program Activities that Drive Sales Channel Performance 9... Chapter 3: Regulatory Considerations 12... Chapter 4: Program Measurement 14... Chapter 5: Trends 15... Chapter 6: Turn-key, Pre-packaged Marketing Tools and Programs 16... Chapter 7: Execution 17... Summary
3 Introduction Channel Marketing is one of the most comprehensive disciplines in the business environment. Effective channel marketing extends corporate initiatives across multiple disciplines including sales, marketing, finance, and sales operations. What s more, your sales channel is the conduit that drives the transaction. Though your channel partners contribute to, and indeed drive, each of the 4 P s in marketing (price, place, promotion, and product), an ineffective program can hamper your ability to optimize sales. Considering the importance of your sales channel in your marketing mix, there are many nuances of channel marketing that can make your program effective. Channel expenditures can run as high 30%-40% of the cost of sales for many marketers, with some companies reporting even higher. Further, Co-op or MDF expenses most often represent a majority of the channel marketing budget. Yet many companies view these expenses as a cost of doing business and not as a strategic driver to help achieve business objectives at the critical point of sale. Promotional allowance programs are front-line tools to help companies achieve a broad range of sales and marketing objectives that can both pull the product through the channel (by influencing the consumer) as well as push the program into the channel (by influencing your channel partner to carry or support your product). Progressive companies today are looking to their promotional allowance programs to help them: Maintain and extend existing partner relationships through co-marketing efforts Recruit new channel partners with special jumpstart allowances Leverage channel budgets to help attain corporate objectives Penetrate target customer or vertical market solutions Drive transactions at the point of sales by having their channel partners promote their products versus the competitions (by driving incremental share of voice and share of sales) Leverage partner relationships with their existing customers to promote up-sell or cross-sell opportunities Improve channel readiness by enabling training, certification, and sales incentive programs
4 Co-op programs are defined as: Co-op programs provide eligible channel partners with marketing allowances that accrue as a percentage of sales. Often, pre-approval requirements are limited and guidelines are well-defined. MDF programs are defined as: MDF programs are discretionary funds provided by manufacturers to their eligible channel partners. The available funds are often not provided to channel partners in advance, but are negotiated by channel partners and their vendor to achieve specific goals. MDF programs often require less proof-ofperformance documentation than traditional co-op programs, and pre-approval is required. Either type of program structure may be applicable to any marketer (or even both). Co-op programs are more often associated with traditional advertising activities in which the costs and proof of performance are easily substantiated. MDF programs, on the other hand, are most often associated with business development activities that are considered contra expense items as mandated by the Sarbanes-Oxley doctrine (more on that later); therefore, MDF programs require unique consideration and evaluation before associated expenses are approved. For the purposes of this ebook, both will be referred to as Channel Promotional Allowance Programs or Promotional Allowance programs. The best practices for program development presented in this ebook are applicable to both.
5 The specific application of these practices to an individual program requires the following considerations: Your product go-to-market strategy and the role your channel partners play in the purchase/sales process Your channel strategy and channel segments how your program will enable your channel partners go-to-market strategy Product category and sales process; for example, whether the products promoted are considered-purchase products with long sales cycles or commodity products that sell more quickly Competitive environment and established industry practices essentially, what precedent has been set by competitors and the industry overall Geographic scope and local government regulations
6 Chapter 1: Setting Program Objectives Begin the process by setting your program objectives. Many marketers make the mistake of setting ambiguous objectives such as, Increase sales. However, when objectives are set too broadly, the associated metrics become harder to quantify. The objectives selected should: Align with, and indeed extend, the individual sales, marketing, and channel objectives that are in place for the company Include clear metrics and goals (for example, how to measure success ) Have metrics that can be reported within the administration processes and management systems you select Define a baseline metric, allowing progress to be tracked for each objective Typical Objectives for Promotional Allowance Programs Increase sales, overall or of specific products Reinforce brand messaging Focus spending behind specific products, media, or events (often used at product introduction, or with end of life products) Increase utilization rates (overall, from select channel partners, or from a select geography) Up-sell or cross-sell new products to existing customers Help introduce products or solutions to new target market segments New partner recruitment Partner enablement
7 Promotional Allowance Program Design Criteria PROGRAM CRITERIA Program eligibility Program period How funds are earned Products promoted Eligible activities Reimbursement guidelines Proof of performance Reimbursement method Creative requirements IMPACT ON PROGRAM DESIGN Which channel partners will be offered the program Program duration; annual or quarterly is most common. Will there be special promotional periods that offer enhanced earning or reimbursement opportunities to partners who perform specific activities? Discretionary or earned accruals? On what basis? Past sales performance? Planned future performance? Allow promotion of all products or some products? Will accrual or reimbursement level vary with specific products? How will the activities allowed support your go-to-market strategies? Your Channel Partners go-tomarket strategies? What behaviors will you want to reward through reimbursement? Fund all activities the same? Or will you bias others? How do you want your partners to substantiate their performance? How will you reimburse efforts? Cash? Credit? Will this be consistent across all partner segments and activity types? Are there special regulations for supporting your brand for which adherence will be required for funding? Will you provide tools? Or let partners create their own? Align Program Components to Achieve Goals Once the objectives and associated metrics are defined, determine how they can be achieved through each component of a typical promotional allowance program. There are many components to a program (beyond the funds and activities) and each may be manipulated to help achieve your objectives. When considered in aggregate, the criteria discussed in the above table present a broad palette of opportunities to help you attain your program objectives.
8 Chapter 2: Selecting Program Activities that Drive Sales Channel Performance From the previous table of program criteria, how funds are earned and eligible activities will have the greatest impact on attainment of objectives. The eligible activities you select for reimbursement should align with the following points: Your go-to-market strategy (how you want to represent yourself in the marketplace) Awareness Your go-to-market strategy (how you want to represent yourself in the marketplace) Your partners go-to-market strategy (how your products are sold through those channels) The buying process (influencers, decision makers, and due diligence required to purchase your product) Interest To that end, the activities you choose should leverage each step normally associated with the buying process (Awareness, Interest, Desire, Action). Below is a list of reimbursable activities often associated with promotional allowance programs. Desire Marketing Communications Business Development Partner Enablement Advertising Demo Programs Training & Certification Direct Mail Tradeshow Telemarketing Events Champion Facilities Action Literature Purchase/Sales Catalogs Incentives Merchandising
9 Chapter 3: Regulatory Considerations Legal and financial regulations must be considered in the design, execution, and accounting of program expenses. The regulatory guidelines discussed here represent government-imposed limits and opportunities for your program. Therefore, both legal and financial counsel should be involved early in the design phase, and long before your program is announced to your partner community. This ebook is not intended to replace or supersede proper legal counsel to ensure compliance of your program.
10 Sarbanes-Oxley Enron and WorldCom misreported earnings to shareholders and engaged in purposeful and fraudulent activities to cover up their true financial conditions. And thus the Sarbanes-Oxley regulatory requirements (or simply SOX) were born. Prior to the SOX regulation, most companies reported trade allowances as marketing expenses. As a result of SOX, many of the expenses charged to these promotional allowance programs are viewed more as perks, or simply rewards for sales performance, and should be classified as contra revenue under the guidelines. Many marketers reacted by classifying all reimbursement expenses as contra revenue. However, this classification can cause significant sales decreases when reporting revenue. There are some activities that can, and should, be maintained as marketing expenses in an effort to boost reported revenue, and contribute to ROI. To maintain the classification of your reimbursements as marketing expenses, all of the following conditions must exist: Marketing Expense Broadcast Advertising Print Advertising Catalogs Direct Mail / Email enewsletters Seminars & Webinars Telemarketing Tradeshows Contra Revenue Demo Equipment Sales Incentives Funded Headcount Recruitment Training & Certification 1. The payment covers a service by the partner that offers a clear benefit to you 2. The benefit is clearly separable from the sale of the product 3. The benefit could be purchased by you from a source other than the partner 4. You have obtained proof of performance to reasonably estimate true cost The table on this page represents how reimbursement expenses for many activities might be categorized against SOX requirements. It is important to note that the activities listed under Marketing Expense do not automatically qualify as such, as certain accounting and validation practices must be met to comply with the expense classification. Those requirements are outside the scope of this ebook.
11 Robinson-Patman The Robinson-Patman Act is a US Federal act that was established in 1936 as an anti-trust law to ensure fair trade between competing retailers by limiting wholesale price discrepancies granted to them by their suppliers. The major legislative purpose behind the Robinson-Patman Act was to provide some measure of protection to small independent retailers and their independent suppliers from what was thought to be unfair competition from vertically integrated, multi-location chain stores. Subsequent amendments specifically include promotional allowances as part of the Act, which many companies were using to circumvent the law that otherwise addressed wholesale price only. There are many opinions about how the law may be interpreted, and indeed how it has been effectively enforced. One such interpretation of the law as it relates to promotional allowances is: All competing resellers must be offered similar programs on a proportionately equal basis. While it is not uncommon for manufacturers to offer different programs of varying value to different channel partners, it might be suggested that these manufacturers have interpreted the words highlighted in bold to conform to their program requirements as follows: Competing resellers implies that consumers have equal access, so a government reseller who doesn't sell to corporate consumer can qualify for a different structure, as they do not cross-sell to the same consumer base. Proportionately equal doesn t mean equal. Programs can vary by tier, sales volume, the number of checkout stands, or other measurable criteria. Offered versus Promote allows you to selectively recruit resellers who you want to participate versus simply informing others of the program s existence. Similar doesn t mean identical program structure, rather similar value (for example, a $1 wholesale price discount is considered the same as a $1 promotional allowance).
12 Chapter 4: Program Measurement As stated earlier, each program objective should have one or more Key Performance Indicators (KPIs) to help you measure progress towards its attainment. Specific metrics should be identified during the program design phase along with the corresponding source of information. Those metrics will have to be captured and reported within your program infrastructure. Program metrics generally fall into two forms: 1. Strategic metrics represent business goals and may include measures such as new clients, sales, units, or reference accounts. 2. Tactical metrics are tied to specific activities and contribute directly or indirectly to strategic business goals. Examples of tactical metrics are shown in the table to the right. Opportunities # of Units Placed Sales Presentations Attendees Qualified Leads Responders Impressions Advertising: Print/Broadcast Advertising: Online Direct Mail Demo Equipment Newsletters Seminar Events Telemarketing Tradeshows Training Webcasts
13 It is often difficult to draw a direct correlation between the more tactical metrics associated with each activity to the overall strategic goals associated with the ultimate transaction. This is because there are typically many distinct contacts required to move a prospect from the initial awareness stage through the buying cycle all the way to the close. Also, the point in time when activity metrics are captured (usually during the claiming process) is often too far in advance of the actual sales close date to effectively report on the correlation between metrics and goals. Therefore, capturing the appropriate metrics of your program will likely happen at multiple points throughout the sales cycle, using multiple sources of data. The data sources themselves are of two basic types: Reported data from your channel partners themselves, preferably substantiated through channel account managers. As guidelines for your source of metrics, remember that: 1. Inaccurate data is often better than none. 2. Even inaccurate data is good if it accurately reflects relative comparisons such as trend reporting. 3. You don t need to collect data unless you know how it will be used. 4. You should understand the limitations of the data, and consider the impact of that data on your reports. Behavioral data as substantiated by internal or other third party data. For example, click-through rates, registration data, data validated through auditing organizations, or POS sell-through data.
14 Chapter 5: Trends Many marketers are using marketing planning tools to define their partners business goals, associated strategies, and outcomes for a specified period. These plans are completed by the partner or account rep in advance of a fiscal period, and the approval of the plan is preconditioned to releasing funding. The advantage of requiring such planning tools is that a manufacturer gets an overall picture of each channel partner s challenges, business objectives, and strategies individually and in aggregate before releasing funds. For companies with longer sales cycles, planning tools provide a context to record the strategic impact (and the metrics associated to each) of each campaign. The plans are completed by the partner or account manager in advance of each fiscal period via manual (spreadsheet) or automated processes (via specialized online applications). Either way, marketing plan content typically includes: Partner objectives for your products Barriers or challenges to overcome to achieve those objectives Business strategies for the fiscal period, including forecasted business outcomes Planned tactics, including costs and forecasted metrics for each activity
15 Chapter 6: Turn-key, Pre-packaged Marketing Tools and Programs Many manufacturers are offering turn-key advertising and marketing programs that both: 1. Promote the vendor s offering and support established brand and messaging guidelines, and 2. Allow the channel partners to reflect their own positioning and value-added services. Often referred to as co-marketing programs, these programs most typically take the form of templated marcom materials spanning a variety of media types. Smaller channel partners are often unsophisticated marketers and use such materials as a solution to their promotional needs. Larger partners may also benefit from these co-marketing efforts offered from their vendors in an effort to attract new customers, or cross-sell existing customers. Typically, the development of these materials is funded by the manufacturer (for example, the templates themselves), while the execution of these programs is funded by the channel partners through the promotional allowance allocation (for example, printing or media costs).
16 Chapter 7: Execution Programs that were meticulously designed often fail in their execution. Below is a summary of some of the issues marketers have with their program after it has been launched. Associated with each is a possible remedy. Errors in Execution Program perceived as too vague or complex. Or, difficult to get funding approved. No clear benefit to the program; no clear ROI. Payments take too long. Payment errors increase expenses, such as paying for the claim twice. Poor or delayed follow through. Failure to get partners to utilize the program. Remedy Clear, concise guidelines for program participation. Objectives properly identified and/or source of metrics universally implemented and available. Cash flow is the largest concern for most businesses today; as most programs are pre-funded by channel partners, reimbursement should be prompt fewer than 30 days from claim approval. Systems should accurately check for duplicate claims. Program administration should follow up within 48 hours on all special requests. Survey partners to better understand your program alignment with their go-to-market strategies. Also, make sure adequate training is in place to ensure uniform understanding of program benefits and administration. Consider joint planning with larger partners through high-touch channel account managers.
17 Summary The practices recommended in this ebook will help you realize improved ROI and greater participation from your promotional allowance program. From the beginning, align program objectives to meet company sales/marketing goals. Also, define and assign KPIs to each objective to measure program progress. Design programs and optimize success by considering channel segments and the go-to-market strategies of each. Be aware of the buying processes of your end consumers and the competitive environment and industry practices in which you operate. From a compliance standpoint, consider appropriate legal and financial regulations prior to launch. Remember that execution is as important as design. Provide clear program guidelines and comprehensive training to all stakeholders upon program launch. Administrative practices and systems should automate program processes, enhance reporting, and streamline turnaround time. Continuous improvement is also key. Evaluate and evolve your program against program objectives at least once per year to ensure continued partner engagement, goal attainment and overall program success. About CCI CCI delivers comprehensive incentive solutions to optimize sales channel performance. As an enterprise software and services solutions provider, CCI enables channel marketers to manage and measure sales and marketing incentive programs throughout their demand chain, resulting in greater spending efficiency and improved program effectiveness. CCI provides a combination of ondemand software, professional services, and program management. CCI s Professional Services team applies best practices to define and deploy programs that meet your business goals. Equally powerful is CCI s software. Delivered as SaaS, CCI automates your channel programs and partner activity for increased visibility, measurement, and ROI. Once deployed, CCI Program Management delivers services such as contact center support, auditing, and payment services to ensure program operational efficiencies. CCI helps many of the most successful companies in the world - including Autodesk, Avaya, Brocade, Emerson, Cox Communications, Motorola, Siemens, Sony, Verizon, Xerox and more turn their channel programs into a key competitive advantage. For more information, visit channelmanagement.com or subscribe to the Channel Champion blog.