• MDF or Rebates…Which is Better?

    As you know, effective channel marketing programs are basically a series of “carrot” and “stick” value propositions to your channel partners.  

    And since stick-based motivational methods are not really the best way to influence people who otherwise have a choice; channel programs typically offer a lot of carrots. While marketers many may not think of Deal Registration or MDF programs as an incentive program, they indeed are.  Both program types offer an incentive to your partners to influence unique behaviors.

    In the case of the former, the desired behavior is to notify you of a sales opportunity early in the process.  In the case of the latter, it offers an incentive to promote your product by covering the cost of the effort in full or in part.

    As channel marketers, we get hung up on program labels and often feel pressured into providing programs because “competition has one.” For instance, MDF programs are the most widely held incentive program type offered by vendors today (per our recent Vendor/Partner survey of Q4 2010). Yet, it amazes me that many vendors who offer an MDF program don’t believe it is actually working.  Further, when challenged about the objectives of their program they struggle with the answer.  Or, a different answer is expressed when multiple people in the organization are asked that same question—signaling a lack of vision and poor understanding of the program’s potential. 

    That’s a problem for sure. But what may actually be worse is a movement that I have been experiencing over the last few years that essentially pits the merits of MDF programs against Rebate programs (the second most widely offered incentive program–again, according to our survey).  The focus of this movement is to prompt marketers to abandon MDF programs in favor of back-end rebates (or visa versa). Proponents of the rebate-centric model say that there is more accountability and simplified administration.  On the other hand, MDF proponents promote the value of the program to achieve alignment between vendor and partner sales and marketing activity.

    IMHO, if you’re debating whether you should have one program OR the other, then you are not really clear on what either program is designed to do, nor are you clear as to what behaviors you want to reward your partners for performing.

    So I offer this viewpoint as an alternative way to think of these programs in the context of your overall channel marketing effort.  Begin by viewing all your channel incentive programs as one of two primary types:  “Enablement” and “Reward.”  This is a way of categorizing your incentive programs in between those behaviors you wish to influence in advance of the sale (enablement) vs recognizing  your partners for performance that happened in the past (reward).  

    With those two major categories defined, split them yet again into a quadrant labeled “Strategic” or “Transactional.” Note, this is not to say that the transactional programs listed can’t be strategic in the context of your overall channel marketing effort, rather the label is applied more to make the point that: Strategic Programs are designed to influence overall reseller performance and the GTM strategy, where as transactional programs are intended to influence sales engagements.

    Using this definition, enablement programs are forward looking. There structure is intended to influence behaviors before the sale is completed (even though the reward itself may come later). In context, today’s MDF Programs provide a means for their partners to fund specific activities that influence their overall Go-To-Market approach. Whereas, opportunity management programs provide incentives for partners that are designed to influence behaviors in advance of a specific sales transaction (to elaborate further, if you rewarded partners only for selling your product after the fact, without any pre-sale interaction, it would simply be classified as a “SPIF”).

    Conversely, Reward Programs provide an incentive to partners for behaviors that were performed at some point in the past, or post-sale. This can be expressed over time (quarterly or annually as is the case with Performance Rebate programs which are designed to reward for overall performance across the program period) as well as transactional (as is the case with SPIF programs).

    Equipped with this POV, it seems clear that to focus only on the back-end reward model (and not provide enticement for enablement in advance of the sale) can be very short-sighted– and even damage partner relationships. This approach would put most of the onus on the partner to create the means needed to attain all the stated goals in advance of getting any recognition. Clearly, that’s not a basis on which to build a mutually rewarding partnership. Although not absolutely proven, it would seem that offering only back end rewards  would result in less partners achieving desired goals (resulting in a lower ratio of successful partner relationships), and  those channel partners that do succeed would likely take more time to get there.

    I believe that channel marketers need BOTH enablement and reward programs to succeed.  The programs in both categories should be designed to work in harmony to help equip your channel partners for success (Enablement Incentives), as well as acknowledge success when desired goals have been achieved (Reward Programs). Note: read the last sentence again, because it is no small point.  Your programs should be designed to work synergistically for optimum results—the yin and yang of channel marketing, if you will.

    What is the right mix of reward and enablement programs? That depends on a number of variables. Generally, products that are in a more mature category– or commodity product categories–can benefit from more back-end performance based rewards.   Conversely, more dynamic or emerging product categories can benefit from incentives that drive partner enablement.  But exploring ways to optimize the mix is a concept for another article…..stay tuned, we’re just gettin’ started.

    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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