Funds-based channel marketing programs have passed through a revolution in the last two years. The days of volume-based rebates being redirected to Christmas parties are long gone, with vendors now both more strategic and paranoid in how their marketing funds are spent, but the move to create market development fund (MDF) programs — where resellers submit a marketing plan before funds are allocated — can merely shift the pain from vendor to their partner. And for resellers at the smaller end of the scale, assistance can be scarce. Brad Howarth reports.
During the late 1990s most channel marketing programs consisted of so-called co-op funds, where a reseller would be rebated by the vendor for a percentage of their goods sold. This money was intended for market development activity, such as hosting seminars or direct marketing campaigns, but accounting for usage of these funds was haphazard at best, and often they wound up paying for Christmas parties. The situation led some vendors to withdraw marketing funds altogether. It has only been in the last six months that Microsoft and IBM have both reintroduced broad-based marketing fund programs in Australia.
Channel marketing funds are used for a wide range of purposes, including demand creation, skills acquisition, improving the customer’s experience through demonstration facilities, and for sales and technical tools. Funds can come from the vendor directly, or from a distributor.
The managing director of the distributor LAN Systems, Nick Verykios, said these funds had a different purpose in each case.
“With the vendor’s money we make sure the reseller is equipped to sell that product,” Verykios said. “With our money we keep resellers loyal to us.
The vendors are creating the primary demand for the brands, but not necessarily creating a buying decision, so we use that money to create a buying decision. That means educating and training them [resellers], giving them the funds to buy the demo labs that they need to support the sale.”
The managing director of the channel development consulting company Channel Enablers, Braham Shnider, said the shift away from volume-based co-op programs to subscription-based market development funds (MDFs) helped to address the basic breakdown in the use of the funds.
Shnider said in the past he had heard co-op funds referred to as ‘the drinking fund’.
“When it is co-op, the money is treated as being the partner’s money,” Shnider said. “When it is MDF, it’s treated as being the vendors money. And the behaviour that happens with partners is they accrue co-op to their profit and loss sheet, so therefore they are automatically moving into conflict with the vendor.
“Almost every vendor is moving towards MDF. You want to make them [resellers] more accountable, and if they are applying for funds, they should only be allocated on one criterion: return on investment. In co-op it’s just too easy not to use return-on-investment [ROI] criteria. If the ROI can’t be demonstrated, then don’t do it.”
Today, vendors often require partners to submit detailed marketing plans before funds will be provided. However, Shnider said these schemes were not always easy to use.
“It’s OK to have solid criteria, but the application process shouldn’t take more than five or ten minutes, otherwise it moves into the ‘too-hard’ basket and no one uses the funds,” he said.
This became especially problematic for larger systems integrators and resellers, who dealt with many vendors. The corporate marketing manager at the integrator Data #3, Karen Thompson, said for this reason her company only dealt with the programs of five companies.
Thompson estimated that Data #3 had at least 30 pools of vendor funds that it could draw from, in addition to those available from distributors.
“It really depends on whether it is worth spending the time and energy involved to get the outcome and use the marketing funds that are available,” Thompson said. “Some of them are available with minimal effort. Some are not. The reporting structure that’s now required in each fund — and every fund is different — can be quite time consuming, and sometimes just isn’t worth it. But having said that, smart marketing departments will maximise the vendor funds that are available to them.”
Larger vendors also tend to run multiple program, organised around product sets or reseller types. The director of the partner group at Microsoft Australia, Kerstin Baxter, said the key to that company’s channel marketing program is flexibility.
“We recognise that all of our channel may not align against all of our marketing campaigns and all that we say they should use the marketing funds for,” Baxter said. “We do run big theme campaigns each quarter, which are quite structured, and we will link specific marketing funds to those campaigns. In addition we work with partners on their own marketing campaigns and try to align against where their business focus is.”
Microsoft has about 12,000 partners in Australia, and Baxter said it might be working with as many as 300 at one time. Its small business server security campaign, which ran from October 2002 to February 2003, had a total of 164 partners register, 94 of whom achieved a [total] rebate of $109,500.
Baxter said there was a 50/50 balance between Microsoft’s own program and those of its partners. Each engagement required the partner to submit a marketing plan. Ultimately Microsoft was after results, and Baxter said here too the company was willing to be flexible too.
“We don’t just measure our partners’ success on how much they sell, because our channels have diverged somewhat,” Baxter said. “We have a very strong fulfillment channel that often has services, but we also have lots of services and systems integration or developer partners how don’t fulfill our product. So we need to be able to offer them marketing funds to help them deliver a new market around a new solution area on our technology. And that’s why we don’t link it too closely to how much of a product they sell.”
Shnider agreed that the move away from co-op funds towards MDFs allow a vendor more flexibility in where money is allocated. A failing of percentage-based co-op programs was they only favoured the big resellers.
“The bigger you are, the more marketing dollars you accrue, and not on merit,” Shnider said. “You may have some very small partners that want to go out and do some demand creation or improve the customer experience, but because they are smaller they don’t get the same level of subsidised marketing assistance.”
Subscription-based funds alleviate this by allowing every proposal to be assessed on its merits. However, most smaller resellers still find themselves locked out, as often these programs are not advertised further down the food chain. Also, smaller resellers often lack the marketing skills to develop and execute a marketing plan.
Baxter said Microsoft had begun remedying this situation among its partners, and in May its Business Solutions channel team ran a marketing forum to help educate them.
“We’re planning to evolve that and make that part of our annual partner event, to focus more on those business issues,” Baxter said.
But for smaller resellers, direct assistance is rare, with those contacted for this article not having ever participated in funds-based programs.
According to John Foxe, the manager of Sydney-based reseller IT National, his company has not been made aware of the existence of these programs. Although IT National carries products from most major suppliers, its annual revenue of under $2 million means it is too small to appear on their radar in terms of marketing assistance.
“In terms of a direct contribution back to us, such as marketing and advertising, we’ve not seen it or claimed it,” Foxe said. “We’re not a huge operation at all — just a small turnover business selling through the internet. Most of the distributors run reseller training programs of some sort, and that’s good.”
Baxter said Microsoft’s programs can scale down to one-person operations, but typically the smallest it worked with were five to 10 person organisations.
“We support them by offering many benefits in the form of training, evaluation software, and marketing dollars to rebates, pre-made marketing collateral and books,” she said.
In most instances the best that a smaller reseller may hope for is generic assistance, such as point-of-sale marketing materials, or of rebates to purchasers. An example of a program of this nature is networking equipment supplier Netgear’s Powershift partner program, which is essentially a communications mechanism between it and its partners. Powershift provides services such as lead generation and referrals, update newsletters, marketing and support materials, invitations to special events and training and certification programs. Netgear has 500 partners in this program, and hopes to recruit 2000. While these programs are numerous, this creates a problem in that their availability makes it difficult for resellers to differentiate themselves from each other.
The managing director of Netgear, Ian McLean, said his company had deliberately not offered standard co-op funding or rebate programs as he did not believe these were good for the reseller or the end user. However, Netgear did have market development funds, assessed on a case-by-case basis, available for resellers who wanted to undertake special activities such as online training, seminars, and advertising.
The managing partner of the marketing consulting group MathMarketing, Hugh Macfarlane, said many smaller resellers were simply not equipped to spend co-marketing funds effectively.
“The absolute numbers are too small, and most of the smaller businesses are not sophisticated enough to generate a result with the funds,” Macfarlane said. “They’ll get better mileage through either participating in larger events hosted by their distributors, or keeping their energy and funds allocated to where they can get a proven return, such as hiring, training and managing good sales people.
“By [vendors] making availability of MDF … available only to the top tier, there is some Darwinian drive at work. Resellers have to be good enough to get themselves into the top tier, and have to generate revenue to earn MDF.”