channel incentives and loyalty programs

Who Are Channel Incentive Campaigns For?Channel incentive programs are not suitable for every vendor or every situation and if inappropriately employed, they can be at best ineffective and at worst detrimental to the sales effort and very costly. From the vendors perspective, good candidates are vendors who:

• Want to drive a certain kind of behavior

• Have the need to implement short-term tactical incentives or promotions

• Suffer from poor partner loyalty

• Have mature products well into their product lifecycle

Similarly, incentives are not effective with all channel partners. Good candidates are partners who:

• Respond well to tactical incentives or promotions

• Have a choice of vendor in the vendor’s product category

• Have no affinity to any particular brand

• Sell frequently and/or in volume

• Have influence over the technology purchasing choices of their customer

• Afford their sales people a high degree of autonomy in their choice of product portfolio

What is a Channel Loyalty Program?A channel loyalty program offers channel partners something that encourages ongoing faithfulness to the vendor’s brand. Loyalty programs typically operate over longer periods or indefinitely and reward repeat sales of the vendor’s products. Whilst they can reward individuals with rewards in a similar way to incentives, the rewards are more often accumulative and those directed at the organization tend to reward investment and expressions of commitment in kind.

Who Are Channel Loyalty Programs For?Again, channel loyalty programs are not suitable for every vendor or every situation. From the vendors perspective, good candidates are vendors who:

• Want to reward partner loyalty

• Suffer from poor partner loyalty

• Want to reward partner investment and commitment

• Enjoy a more mature or intimate relationship with their partners

Similarly, loyalty programs are not effective with all channel partners. Good candidates are partners who:

• Respond well to strategic loyalty programs

• Have a desire to minimize the number of vendors product lines carried

• Have a desire to specialize in a limited number of technologies or solutions

• Have influence over the technology purchasing choices of their customer

• Afford their sales people a high degree of autonomy in their choice of product portfolio

A Whitepaper from the World’s Leading PRM Specialists, Foundation Network 1

Channel Incentives and Loyalty Programs

What is a Channel Incentive Campaign?

A channel incentive campaign offers channel partners something that motivates, rouses,

or encourages specific behavior. Often focused on a specific product or within a finite time

period, the incentive itself comes in the form of a bonus or reward, often monetary or other

benefit in kind. A well executed channel incentive program creates a virtuous circle in which

both channel partner and vendor are motivated to collaborate to attain improved performance

and achieve pre-defined goals.

Partner redeems points

for rewards or cash

Channelpartners

make sales

Vendorengages in ongoing incentive program

promotionChannel partners

register saleswith vendor

Vendor awards

points or cash

Vendor validates

sales against recorded sales data

Fig 1. The Channel Incentive Program Virtuous Circle

Why Implement Incentives or Loyalty Programs?Sales people sell for many reasons; their innate competitiveness, their desire to be the best, a need to gain approval from their management and peers and their appetite for career advancement all play a part. But by far the greatest driver of sales activity is financial compensation and benefits. Hence when a vendor employs a direct sales force, motivation is a relatively straightforward affair:

• Pay a competitive salary

• Pay attractive rates of commission on sales

• Offer a compelling package of benefits to the sales person and their family

But there are also several other less tangible sources of motivation:

• Provide them with desirable high quality products that offer competitive benefits

• Generate demand and channel it to them in the form of sales leads

• Own a strong brand behind which they can feel some sense of pride to unite or at least form a positive personal attachment

• Provide them with the sales tools and resources necessary for them to do their job

• Minimize bureaucracy and red tape in order to be an easy company in which to operate

• Celebrate and reward success

• Be seen to reward performers and punish persistent failures

• Be prepared to offer additional incentives when the business requires its sales people to go the extra mile

There are, of course many more but I would guess that these are common to most vendors. What is also common is that direct sales people have a contractual obligation to sell on your behalf and yours alone. They are also obliged to meet your performance targets

consistently or else put their job at risk. What is more, you manage them, you direct their actions and therefore their performance is itself a direct result of the effectiveness of your own management.

But can these principles be applied to the motivation of an indirect channel where none of these latter conditions apply? Well it is certainly the case that unless you are a market leader, channel management by coercion does not work. And if you are a market leader, such coercion can only apply to the partner’s business – not their individual sales people. For example, you may penalize a partner’s business by offering less discount and therefore less margin should they fail to meet your accreditation criteria. But this penalty may not be felt by the individual sales person at all and if it is, faced with weaker margins and less competitive pricing, the sales person will often sell a more attractive competitive product instead.

Hence, channel sales people must be motivated and incentivized to sell your products especially when, as is most often the case, competitive products are available for them to sell. It goes without saying that partner sales people are just as motivated by money as your own but you have little or no influence over what they are paid or how they are compensated. Interestingly however, if we review the list of less tangible motivators above, we can see a direct correlation between the needs of direct and indirect sales people from the vendor. It is through addressing these that you will have more success in winning over your channel sales people.

Implementing a Loyalty ProgramI have a British Airways Gold Executive Club Card and (sadly) I’m proud of it. When I’m close to losing it, I have been known to go to extraordinary lengths to make up my annual points total. And when BA are having a slow quarter, I often help them out by taking them up on their offers of double points or free upgrades. I don’t fly with any other airline unless there is no alternative and I do all this because of a plastic card and a free cup of coffee on a comfortable chair. But then deep down, I’m a sales person and I respond well to loyalty programs and incentives.

Loyalty programs are by definition strategic. In other words, such a program lasts for a long time or perhaps indefinitely and sets out to reward partners who are consistently loyal to your brand or product range over time. There are a variety of different models but most consist of two components:

1. Rewards for the organization

2. Rewards for the individual


Sales people sell for many reasons; their innate

competitiveness, their desire to be the best, a need to

gain approval from their management and peers and

their appetite for career advancement all play a part.

But by far the greatest driver of sales activity is financial

compensation and benefits.

Rewarding the OrganizationLoyal partner organizations often demonstrate their loyalty by making investments likely to generate or support the generation of sales of a vendors products:

• Skilled manpower

• Infrastructure

• Facilities

• Training

• Support capabilities

• Demonstration equipment

• Marketing activities

In the not too distant past, vendors would often reward owners or principles of such loyal partners with personal gifts or other rewards – some still do. Such practices are frowned upon today and are in any case of questionable legality and of limited long-term benefit.

We are all familiar with the proverb “If you give a starving man a fish, you feed him for a day. If you teach him how to fish he can feed himself for life.”The same rule applies to rewarding channel loyalty. Linkage of traditional co-op (MDF) marketing programs with loyalty programs can be extremely effective. By structuring the terms and conditions of such a program around providing active encouragement to channel partners to invest in enriching their ability to sell to, market to and provide support for your mutual customers, you build a firm foundation for growth and help to develop a channel eco system capable of growing, maturing and adapting to changing markets and technologies at your side.

Hence, I have seen MDF programs mature in their sophistication to become channel strategic development funds – supporting the development and evolution of a vendor’s channel – not their bottom line!

Fig 3. Sony’s ‘Sony Rewards’ Program Rewards Loyalty and

Supports Tactical Incentives

If appropriate, accreditation programs can also play a part. If well implemented and managed, such schemes can provide additional rewards to the organization in recognition of investments made as above. But as we will discuss later, accreditation programs must stand for more than a plaque on the wall in reception. They must be promoted actively by the vendor to their customers and they must attract additional benefits for the partner in terms of preferential access to pricing and pricing support, sales and marketing collaboration, tools, resources and of course sales leads.

Rewarding the Individual

Programs aimed at the individual (typically) sales person often reward sales with points and points with rewards of some sort based upon recorded sales:

• Gift catalogues

• Vouchers with a monetary value

• Vouchers for goods or services

• Credit or debit card accounts

All such schemes can work well and some are better suited to specific countries, and cultures than others. Success can be governed by local pay and conditions, type of reward, threshold for entry and the time taken / effort expended to secure the all important first reward. But such programs can be incredibly expensive to operate, promote and fulfill. There are many marketing agencies out there eagerly waiting to take your money so consider automation in house before taking this route.


PersonalRewards

CompanyRewards

Long-TermLoyalty

Fig 2. Building Long-Term Loyalty

Fig 4. Lexmark’s Loyalty Rewards Program Targets the

Organization and the Individual

And a word of warning: unless a loyalty program aimed at individuals operates in parallel with one aimed at the organization they work for, they are rarely more effective than tactical incentives. This is because the individual’s attention span is limited and because your competitors will soon find a way to exploit this with more appealing incentives.

Implementing an Incentive CampaignTactical incentive campaigns can be much more effective at helping to mold behavior amongst your channel where short term goals become paramount eg. selling out end of line product, supporting a product launch etc. But you must be lighting fast and communicate directly with the channel sales people. Don’t rely on distributors or your channel account managers to do it – they won’t unless there’s something in it for them as well and by the time they reach everyone with the message, it will all be over.

Fig 5. Trend Micro’s ‘Affinity Rewards’ Program Features

Multiple Tactical Promotions & Incentives

Tactical incentives are a great way of solving short term problems or creating a buzz and increasing activity for a short period of time but build them in under the umbrella of your strategic loyalty program and don’t run them too frequently or to regularly – I knew of channel sales people who would manipulate customer orders to ensure that they were placed to coincide with the vendors next incentive!

And remember, these campaigns should always be aimed at individuals – living breathing people - so they need to be exciting, they need to provoke an immediate response and they need to make people want to participate. The vendor is responsible for stimulating a positive reaction at launch and sustaining the energy and enthusiasm throughout the campaign with frequent, targeted, personalized communication. If you fear that you cannot do this, you will be wasting your time and money.

The Potential PitfallsLoyalty programs are all about rewarding people on an ongoing basis for doing things they would have done anyway to make sure they don’t stop doing them. Incentive programs are for getting extraordinary results – launching a new product with a splash, doubling sales of a slow-moving product, flushing out old end-of-line stock from a distributor. So by definition, they should not reward sales that you would have made without offering the incentive. Avoiding this pitfall can be tricky but will rely entirely upon your planning and development of the terms and conditions. The worst case scenario – and one that I have witnessed first hand is one in which you spend 10’s of 1,000’s of dollars on payouts to the channel for an incentive that delivers exactly no increase in performance.

On a similar topic, let us discuss top performers. Years ago, when margin was more plentiful, vendors used to treat their top channel performers to no-expense-spared ‘business trips’ or ‘conferences’ in exotic places. The problem was that it was inevitably the same faces every year and the events became clichéd thank-you’s for services rendered rather than an effective incentive for greater performance. But rewarding top performers can be effective if properly implemented and well communicated. It is important to consider your objectives first though. What defines true success? What really makes a difference to you? For example, is it better to reward a partner for winning new customers rather than simply selling the most to the one’s you already had?


Strategy, Planning and Process AutomationMany incentives and loyalty programs cost a great deal to implement and ultimately deliver very little benefit to the vendor or their partners. This is often as a result of inadequate planning and preparation and lackluster execution. Before embarking on either initiative, ensure that you do the following:

1. Establish clear goals. What are your quantitative goals – revenue, profit, unit sales etc? What are your qualitative goals – preferred vendor, partner satisfaction, loyalty etc?

2. Strategy. Ensure that you have a clear line of site to your goals and well planned strategy for getting your there. How does the incentive or loyalty strategy fit with your other business strategies – is it complementary or is there a conflict. How best can it be aligned for consistency?

It is also critical to establish a concrete set of business rules for the campaign or program:

• Which customer type are you targeting through your channel?

• Which partner type will be allowed to participate?

• Who will you target – sales, marketing, management?

• Which product / service type will be eligible?

• Will you impose any volume / value thresholds?

• Will you require proof of sale to corroborate claims?

• From what source will you obtain proof or sale or sales data?

• What happens in the event of cancellation or returns?

• How will you handle T’s and C’s variation by country?

• Etc.

And finally, what business processes will have to be introduced, implemented and managed to execute the initiative:

• Targeting

• Registration

• Approvals

• Communication

• Points accrual / allocation

• Claims and redemptions

• Claim validation

• Reward assignment

• Reward order, book, pack, ship, track and return

Fig 6. Foundation Network’s RelayWare Software as a Service

(SaaS). Provides All of the Tools Necessary to Automate and

Manage Your Loyalty Programs and Incentives

It is often this last issue that draws our customers to Foundation Network and to RelayWare. Like any other business initiative, these rely upon efficient and consistent execution of often complex processes. As a result, effective execution of a successful incentive or loyalty program is beyond the means and resources of most vendors. As a result, they are often outsourced to expensive marketing agencies who rarely do a better job. Business process automation and program management by a suitably equipped Partner Relationship Management (PRM) system is the only proven and cost effective solution and is fully supported by RelayWare.

Beyond Incentives and Loyalty ProgramsAs we have already discussed, channel partners; both organizations and individuals can be overtly motivated by rewards. But they can also be motivated by less overt and often less tangible benefits that can have just as significant and often a more sustained impact on performance. They prefer to sell brands that they know and trust and that require a minimal amount of selling to get the deal. They are also much happier having the vendor create demand for their products in the market without having to do all of the work themselves. With this in mind, here are a few other recommendations for motivating your channel:

3. Generate demand and be seen to do it. Whether your marketing budget is $1,000 or $1,000,000 per month, give your channel advance notice of what you will be marketing, to whom, when and via which medium. This makes it much easier for them to capitalize on your activities with their customers. Give them the opportunity to leverage your marketing investment with sales and marketing efforts of their own. This sounds obvious – but channel partners are usually the last to find out about vendor campaigns!


If you can share your campaign materials with them and even let them customize and execute joint campaigns of their own, all the better.

4. Allow brand-hijacking. Your branding campaigns do little to drive demand but they do create brand awareness and brand association. Partners will prefer to work with vendors whose brand values are closely aligned with their own or where they can only aspire to have such brand values themselves. Quality, reliability, innovation, performance, speed. Think about this because if your brand image isn’t one that your channel may want to share, they will be less inclined to proactively sell and market on your behalf. Share your branding campaigns with your channel as well your demand generation campaigns. Let them hijack your brand campaign and turn it into a direct demand generator by supporting co-operative marketing activity.

5. Channel demand to your best partners. When a customer is influenced to buy as a result of your website or closed-loop marketing campaign, direct them towards your partners to fulfill that demand. If you don’t have a partner locator tool on your website yet – get one. Customers won’t dial your 0845 number and hold for an agent to find out where they can buy, they may simply go elsewhere. Modern partner locators don’t just search on postcode. This is because geographic proximity is only one profile attribute of many. Such a tool needs to match customer size, horizontal and vertical market, product requirement, value added services requirement and so on and it must search against your most recent and most accurate partner database. It should also offer the customer a choice and notify the selected partner(s) that a referral has been made encouraging them to proactively follow it up.

6. Give the leads to closers. If your marketing campaigns generate sales leads, make sure that they are given to the most appropriate person (a closer) within the most appropriate partner without delay. Impose an SLA for lead recipients to respond and contact the customer and monitor the lead until it is closed whilst offering your support to the partner to close it. Reduce the amount of manual intervention within the lead management process in your own company. Celebrate success and reward closers with more leads.

7. Accept leads from partners and reward their transparency. If a partner sales person registers deals in progress with you early in the sales cycle, it allows you to offer support or intervene to help win them. Make the registration process simple and available online. Make it easy for the partner to update deals and request physical or pricing support. If a deal is won, reward the partner generously and if someone else poaches the deal on price, reward the registrant anyway. You probably wouldn’t have won it without them. Some vendors struggle to get partners buy in for programs such as this due to a lack of trust or motivation. Make it worth their while, apply your rules for consistently and you will benefit from more new business, greater partner loyalty and a very comprehensive sales pipeline.

8. Investing in collaborative marketing. “MDF”, “soft dollars”, marketing rebate – whatever you call it, it has a poor reputation for delivery of a good return on investment and throughout the history of the industry, most has ended up propping up channel balance sheets. So much so that vendors have introduced restrictions, limitations or else withdrawn it all together. This is a mistake. It is also a mistake to believe that administering such funds is difficult and time consuming. A good PRM system can manage these funds with ease and link in to both your financial systems to manage accruals and credits and your partner portals to facilitate self-service funding applications, approvals, redemptions and ROI reporting. Giving access to such funding in a disciplined, controlled and administratively ‘low-impact’ manner will encourage proper use and will facilitate comprehensive reporting and analysis to ensure your get value for money and a good return whilst motivating your partners.

9. Keep it simple. In every partner satisfaction survey I have read, there are a number of consistent stand-out comments made by partners. They say that they like to work with vendors who are “easy to do business with”.


When a customer is influenced to buy as a result of your

website or closed-loop marketing campaign, direct them

towards your partners to fulfill that demand. If you don’t

have a partner locator tool on your website yet – get

one. Customers won’t dial your 0845 number and hold

for an agent to find out where they can buy, they may

simply go elsewhere.

There is nothing wrong with being disciplined, well organized and even process-driven but being bureaucratic and forcing your channel partners to endure excessive and painstaking administration or to jump through hoops unless absolutely necessary will demoralize and demotivate them. Before applying any practice to your partners or mandating any business process, think first if it will benefit the partner, consider alternatives and if none exist, Needless bureaucracy is the preserve of the market leader. If you are not one, keep it simple!

10. It’s nice to be nice. Your corporate culture and partner-facing demeanor matters too. Your channel partners want to be treated with fairness, respect and courtesy. And no-one likes an arrogant vendor - I’m sure we can all think of one or two of those! But these things really do matter and can make a significant impact upon the levels of motivation your partners exhibit towards working with you. As individuals we prefer working with people we like or who are like us. As vendors, we should always ensure that we are:

a. Respectful

b. Courteous

c. Consistent

d. Supportive

e. Flexible

f. Easy to contact

g. Sales- and marketing-led

h. Keen to “do a deal”

SummaryIn summary, you can buy loyalty and you can earn it. Earning loyalty is more difficult and more time consuming to do but loyalty that is earned is infinitely more enduring. Meanwhile incentive campaigns, if well planned and executed can deliver excellent short term results boosting vendor profiles and sales. In essence then:

• Incentives help you to achieve tactical goals

• Loyalty programs help you to achieve strategic goals

• A combination of the two works best


Foundation Network LimitedThe Magdalen CentreThe Oxford Science ParkOxford UK, OX4 4GA

www.relayware.comwww.foundation-network.cominfo@foundation-network.comTel: +44 (0)870 601 1090

A balanced approach is most effective and most able

to respond to the needs of a fast moving market and a

rapidly evolving channel. But execution requires careful

planning, rule definition and business process design

and implementation. Ultimately, incentive campaign

and loyalty program automation is best facilitated by a

suitably equipped software system like RelayWare from

Foundation Network

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