• Using Auctions to Optimize MDF Utilization

    Online auctions are a great way to profit from the otherwise unwanted treasures you have laying around the house. The popularity of eBay and other auction sites are a testament to that. However, auctions are also an emerging means to profit from otherwise unused MDF allocations as well.  In this instance, unused MDF allocations are “auctioned” at the end of a program period in an effort to divert those funds to profitable ventures before those funds would otherwise expire.

    In practice, auctions work like this:

    Near the end of a program period, there are typically a certain percentage of funds that are left on the table as “uncommitted.” These funds may have previously been set aside for use by regions or partners, but no requests were made for them—essentially freeing them up for auction, or alternatively, expiration.

    The program administrator determines how much of these funds may be available for re-allocation. In addition, the administrator determines which region or partner segment may qualify for those funds, and therefore invited for participation in the auction.

    The selected partners are notified of fund availability. That notification also includes  criteria for eligibility—such a to support a specific initiative or product group that align with the Vendor’s own GTM goals.

    Access to the funds are not automatic, partners must submit a plan for the funds which detail how the funds will be spent, as well as the business outcome (such as the expected value of sales, number of opportunities opened, number of new customers, etc.). Typically, a deadline for submission is provided for any plans to be considered.

    The program administrator reviews each plan, then awards funds to the “winning” plans accordingly.

    Auctions are clearly a great way to utilize funds that would have otherwise gone unspent. Therefore, it’s easy to see why they are growing in popularity.  However before embarking on such a program of your own, there are some things to consider.

    Timing: Depending on your sales cycle, the available time in which to use the funds before they expire has to be meaningful.  Don’t assume your partners are going to come up with a program that has to be designed and executed in the short term that is going to set the world on fire.  Likely, the most rational plans will be submitted by those partners who wish augment what they are currently doing.

    Anti-trust : In the US, anti-trust laws as expressed  by the Robinson Patman Act applies to promotional allowances (Co-op or MDF programs) as well as price discounts (because in the eyes of the law, incentives such as these are considered another form of discount). Loosely translated, that law states that you must provide all competing channel partners with discounts and allowances that are proportionately equal. 

    There is wiggle room with regard to the interpretation of “competing partners” and “proportionately equal” that has been a subject of a prior blog entry. But the bottom line is this: your legal council may have a POV on how these funds may be selectively distributed.  In practice, however,  there is very little exposure to you because for the act to be enforced, someone (like, one of your partners) would essentially have to prove that funds were granted to a competitor of that partner that resulted in an unfair competitive advantage.  While unlikely, it’s still a consideration. After all, you wouldn’t want such a program to be a career-limiting move.

    If you are going to consider auctions to augment your program, I would recommend that you carefully monitor the use of those funds for any success stories and best practices that may arise. Knowing this will help you justify, and enhance, future efforts.

    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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