It’s time to fall in love with your market development funds program again and you can do it without dramatically increasing spending or adding resources.
The Promotional Allowance program—more commonly known as Market Development Funds (MDF) or Cooperative Advertising (Co-Op) programs—is the grandfather of all modern-day channel programs. The concept of offering channel partners price reductions in exchange for product promotion was conceived in the early 20th century as a way to get around price discrimination between manufacturers and their larger stores, like Sears. And in spite of longstanding regulation through the Federal Trade Commission’s (FTC) Robinson Patman Act, the concept has survived and lives on as contemporary MDF and Co-Op programs.
Given the number of channel programs that have gained popularity in recent years, attention to MDF/Co-Op often falls by the wayside. In the category of channel incentives alone, we have seen the emergence of deal registration/opportunity management discounts, volume rebates, SPIFs/loyalty programs, onboarding incentives, and much more. The focus on these trendier options have often resulted in a stagnation of traditional MDF/Co-Op programs—ultimately dismissed as a “cost of doing business” only offered to match competitive efforts. Why? Many, but not all of the reasons are presented below:
1. Lack of Clear ROI on the Marketing Investment
Suppliers offering the programs have a difficult time correlating MDF investment with business results.
2. Cumbersome Administration
Lengthy approval cycles and claim-to-payment cycles have made these programs too burdensome and a distraction for both suppliers and channel partners alike. In most cases, the channel partners have paid for the activity in advance; and if it takes weeks or even months to get reimbursed after submitting mounds of paperwork, the effort—and its impact on cash flow—becomes too much hassle for too little reward. As a result, partners stop using the program and marketers are relieved not to deal with the support calls and administrative distractions.
3. Flawed Processes
As an extension of the previous point, inaccurate administration creates errors in payments, even duplicate payments, questionable approvals, and missing claims or content. The administrative requirements for Sarbanes-Oxley compliance have added an additional layer of complexity (Thanks Enron!). The result is that many finance departments are viewing the MDF/Co-Op investment as the “wild west of marketing funds” with little control or oversight.
4. Multi-Currency Program Management
Many business-to-business marketers are globalizing their channel programs in an effort to penetrate new markets. As MDF funds are spent locally by channel partners, multi-currency management becomes an issue.All planning may be done in one currency, but the claims, invoices, and other necessary documentation is submitted in another. What’s more, foreign exchange (FX) rates can fluctuate in the time between when a plan is approved and when the claim is paid. Put all this together, and the final amount that gets reimbursed to the partner on a claim can be the subject of a support nightmare.
All of these character flaws (and possibly others) cause marketers to forsake their MDF programs in favor of other program types. This apathy causes MDF/Co-Op programs to degrade further and, in turn, intensifies the preference for more fashionable incentive programs (and channel programming and infrastructure in general).
Considering the extent of your investment in MDF/Co-Op programs, the good news is that all of this adversity can be eliminated (or at least greatly minimized). What’s more, with modern advancements in program design and infrastructure you CAN take your current investment and turn your MDF program into a competitive advantage and have greater visibility into business impact. We will explore how to do this by a) addressing the core issues of a typical program as expressed above, as well as b) reviewing and modifying your program (and possibly infrastructure) for greater efficacy through best practices.
Addressing the issues that have plagued MDF programs in the past.
Best practices to optimize program effectiveness:
- Tailor programs to achieve mutual goals, this may mean having unique programs by region, channel segment, partner lifecycle or all three.
- Set clear objectives for your program that can be tracked and focus your spending accordingly. This can be by go-to-market goal, product, partner readiness or others.
- Use programs to fund more than promotional costs. Today, MDF/Co-Op is also used to support partner enablement and can be applied at any point in the sales process (e.g., training and certification, demo equipment/seed units and more).
- Make it easy and worthwhile for partners to participate. There are several ways to achieve this through training, marketing certification, pre-packaged market plays, and more.
- Focus spending with those partners and activities that will show the most potential. Yes, the 20% of your partners will do 80% of your volume, but new go-to-market models are uncovering high potential partners that can grow faster. Use joint business planning to uncover partner potential, and then optimize it through market planning.
Clearly, there is a lot of substance around any one of these recommendations and we have additional resources that will help you further grow your appreciation for promotional allowance programs. These programs may be as old as Father Time, but there are plenty of reasons to love what they can do to build channel partner engagement and loyalty—AND make your investment work harder.
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