• Commoditized Products: A Channel Marketer’s Dream

    The task of marketing commoditized products has never been a haven for IT marketing professionals. Differentiating brands to end users is often difficult and costly—usually yielding very low ROI.  After all, how do you differentiate a peach?

    While many companies spend millions attempting to do this, really the more efficient route to differentiation is by targeting your channel partners—not the consumer. For this reason, commoditized products can be a channel marketer’s dream.  The reasons why are the subject of this blog entry.

    Interestingly, one of the bigger challenges I see with vendors is actually admitting their product or category is indeed commoditized, as everyone feels that they have that “one ingredient” for differentiation which justifies continued marketing spending against the consumer to increase awareness and encourage a “pull through” marketing strategy.

    So, without naming categories or specific brands (as I don’t want to offend anyone), let’s start with some characteristics of a commoditized product category to see if you qualify as such:

    Hopefully, the information in the above chart will help you objectively decide if your product falls within a commoditized category or not.  If so, read on—‘cause the rest of this article is for you.

    To repeat my claim: the most efficient way to gain market share in a commoditized category is through channel loyalty (vs Consumer preference).  The use of the word “efficient”  is key, because it implies winning channel loyalty as a less costly means (Money, Time, Manpower) to achieve the same end (vs creating consumer demand)—in this case market share. This of course is great news for channel marketers, because it just brought your position front and center. Essentially, your channel program becomes your competitive advantage.

    So what does it take to increase channel loyalty? Well, there are many possible answers based on your category (e.g.: availability, service, relationship), but certainly among them will be incentives for performance.

    If your product or category doesn’t benefit from a strong consumer/end user preference, than the consumer will likely purchase the brand recommended to them by their sales person. This has incentive written all over it. And some combination of the following incentives will likely be a part.

    Reseller Rebates: These are rewards targeting reseller entities (businesses) for attaining key milestones. Those milestones are usually sales related, but the trend is to consider soft goals as well.  These programs are typically either Performance Based (such as rewards for increasing sales over a previous period by a pre-defined percentage) or Objective Based, which the reseller earns by attaining a specific set of milestones.  Again, these milestones can be comprised of both sales goals and “soft” activities. ,For example, as soft goal may be attaining a specified minimum close ratio of “closed/won” on leads supplied to the reseller.. Reseller Rebates are among the most popular types of incentive programs because they motivate the entire organization—with executive management support—to attain mutually beneficial goals.

    SPIFs paid to reseller sales reps or SEs: These programs are great because they reward the sale at the point where it’s needed most—at the point of transaction between a sales rep and their prospect.  They can be structured as either a tactical SPIF program (short term) to augment reseller rebates described above, or as an ongoing loyalty program in which you build a relationship with the Sales Reps and SEs directly through ongoing communication and interaction with the most influential of all roles in your demand chain. Despite the importance of this group, often  gaining access to this audience can be difficult as the reseller management would rather dictate sales  priorities to their team—and not one of their vendors.

    End User programs (including: Cash-Back, free trial,  or Trade-in programs: While not a program targeting your resellers per-se, you are providing a tool that your resellers can use to close a deal—or sweeten an existing deal that will help get the prospect to say “yes”.  Like SPIFs above, this too influences the transaction at the point of decision—but because it doesn’t directly target the Sales Team, reseller management may be more open to supporting it. Often these programs are funding through MDF allowances, which brings us to…

    MDF: This may seem out of place because MDF is usually associated with reimbursement for marketing activities that drive end-user demand. However, the trend is for MDF to fund a broad range of “partner enablement” activities such as demo units, training and other important activities that will better equip your partners to represent your products to their customers and prospects.

    Deal Registration: I put this last, not because I don’t consider it an “incentive” (because it is), but because many marketers within commodity categories have evolved their once mighty deal reg programs into pure incentive programs. This is done by a gradual shifting  from the original intent of deal registration to either: a) gain pipeline visibility, b) motivate resellers to adapt more of a “hunter” mentality (vs farmer) or c) minimize channel conflict. The less effective your program becomes at obtaining one of these goals, the more it becomes just another incentive program. So, unless your deal registration program can be measured against one of these criteria,  the other incentive programs mentioned in this entry are easier to administer and more compelling for partners.

    Why deal with the time and expense of putting these programs together? Why not just lower the price?

    The reason is simple—lowering prices will usually just lower street price. A lower street price means you are promoting channel switching—not growing market share.  In the long run, it is better to have a program in place that will reward desired behavior at key points in your demand chain– motivating your partners to be advocates for life.

    Craig DeWolf is Vice President of Business Strategy for CCI: Channel Management Solutions.  Craig’s extensive experience spans over 20-years, across a variety of industries and distribution models. This background has given Craig an excellent perspective of the issues facing marketers and their distribution partners, and the solutions that will make them mutually successful.

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