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How To Build Successful Channel Incentive Programs

HOW TO BUILD SUCCESSFUL CHANNEL INCENTIVE PROGRAMS TYPES OF PROGRAMS I. MDF 2. SPIF AND REBATE Stands for market development funds" these funds are usually given proactively to select partners at the vendor's discretion based on the partner's alignment with the vendor's strategic goals. SPIFS and Rebates are the simplest sales incentives to develop and deploy to any sales team. SPIFS provide a guaranteed payout with short-term duration. Sell X to get $Y PROS CONS PROS CONS • Multi-level pre-approval process • Used for short sales-cycle products with highly competitive environment • Less effective with long sales cycles • Funds can be distributed dynamically to address the changes in the market • Can expose vendor to litigation if partner access to funds is not properly tiered • Might require 1099 compliance • Used for activities categorized as "contra-revenue expenses" • Minimal infrastructure with quick results 3. CO-OP 4. LOYALTY Also known as "trade promotional allowance programs, where partners accrue credits for marketing spend based on sales performance. Designed to build relationships. loyalty sales incentive programs reward behaviors with a long-term duration. Sell X, do Y, and earn points towards Z PROS CONS PROS CONS · Easier to plan programs in advance and requires minimal pre-approval Can be seen as an "entitlement" by marketers. Harder to control or change the distribution of fund throughout the program period. • Supports both long and short-term objectives with no need to re-launch with each tactical element • Longer planning process to support both long and short-term objectives • Suited for qualifying marketing • Requires technology, management, and communications · Easy to model over time, and reward budget is predictable expenses Requires heavy proof of performance and administration 5. SALES CONTESTS TOP PARTNER SCORECARDING METRICS: Rewards are won by a limited number of participants and have an element of chance. Sell X or do Y to win a prize 1. Sales Revenue 2. Length of Tenure 3. Sales by Product Customer Satisfaction level 5. Mindshare 6. Product and Solution Certifications 7. Track Record 8. Market Penetration 9. Marketing Capabilities 10. Sales Capabilities 11. Business Plan 12. Marketing Plan 13. Growth Plan 14. Vertical Focus & Expertise 15. Geography 16. Level of effort required 17. Strategic Value PROS CONS • Subject to local laws and classified as "sweepstakes" • Fixed reward budget • Can be overlaid with SPIF and loyalty programs to generate more involvement • Less motivating and less effective for long-term programs TYPES OF REWARDS TRAVEL/MERCHANDISE CASH REWARD CARDS PROS PROS PROS E or a • Can be used as an overlay with other awards · Has a high appeal to participants and can be designed in tiers • Ideal for short-term programs · Easy to established a perceived value · Reloadable cards suitable for long-term programs and fixed value cards are appropriate for short-term programs •High appeal because of the card's flexibility CONS CONS CONS • Subject to additional mark-ups, and taxes/tariffs may apply to non-US markets • Price range of redeemable rewards should span the spectrum of program participants to keep the awards practical •Often not seen as good ROI by recipient • International distribution is difficult and requires special dispensary service • Subject to unique regulations when distributing to other countries • Infrastructure requirements more expensive than cash • May not be an option in some countries CHANNEL SPEND ACCOUNTING: ARE YOU COMPLIANT? Many companies expose themselves to great legal risk by not properly categorizing their program expenditures as Contra Revenue or OPEX. So it's crucial that both Channel and Finance teams know the rules. OPEX Payment Criteria: CONTRA REVENUE OPEX Unless trade promotion payments meet four tests, they are all to be considered "contra revenue" rather than the long-standing practice of coding them as marketing expenses (OPEX). (MDF & INCENTIVES) (CO-OP) PARTNER ENABLEMENT MARKETING AWARENESS 1) The payment covers a service by the • Demo Equipment • Service • Training (certification, specialization, etc) • Company X Funded Headcount (Brand Champion) • Business Enablement • Web Marketing partner that offers a clear benefit to the • Print Advertising • Marketing tools · Broadcast Advertising • Thought Leadership manufacturer; 2) The benefit is clearly separable from the sale of the product; • Direct marketing • Social Networking • Twitter, Facebook, etc. 3) The benefit could be purchased by the PARTNER INCENTIVES manufacturer from a source other than • SPIF the partner; and, • Rewards · Events • Contests • Integrated Campaign 4) The manufacturer has obtained proof of • Incentives performance and is able to reasonably estimate true costs, POTENTIAL RISKS • Complex programs usually have lower participation and might not achieve objectives. Keep it simple. • Failing to regularly update partner scorecarding formulas puts the future of your channel at risk by inadequately grooming your key partners of the future. • Minimize incentives fraud by requiring receipts, tracking serial numbers, and having CAMS periodically review summaries of rebates & SPIFS in their region. Jncentives and the 80/20 rule 80% of participants are 80% Tow performers 20% ise to the occasion SOURCES 1. Financial Accounting Standards Board, Ruling 01-9 issued in October 2001. 2. 3. © CC| GLOBAL CHANNEL MANAGEMENT www.CHANNELMANAGEMENT.COM

How To Build Successful Channel Incentive Programs

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Channel Management has created an infographic outlining incentive programs and how to create the best programs that will help generate revenue.


Megan Heck


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