Channel Incentives And Loyalty Programs

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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.

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Channel Incentives And Loyalty Programs

  1. 1. 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. • Sell frequently and/or in volume Partner Channel • Have influence over the technology purchasing redeems points partners choices of their customer for rewards make sales or cash • Afford their sales people a high degree of autonomy in their choice of product portfolio What is a Channel Loyalty Program? Vendor engages in ongoing A channel loyalty program offers channel partners incentive program something that encourages ongoing faithfulness to the Vendor Channel promotion vendor’s brand. Loyalty programs typically operate over awards partners points or register sales longer periods or indefinitely and reward repeat sales of cash with vendor the vendor’s products. Whilst they can reward individuals with rewards in a similar way to incentives, the rewards Vendor are more often accumulative and those directed at the validates sales against organization tend to reward investment and expressions recorded of commitment in kind. sales data Who Are Channel Loyalty Programs For? Fig 1. The Channel Incentive Program Virtuous Circle Again, channel loyalty programs are not suitable for every vendor or every situation. From the vendors Who Are Channel Incentive Campaigns For? perspective, good candidates are vendors who: Channel incentive programs are not suitable for • Want to reward partner loyalty every vendor or every situation and if inappropriately • Suffer from poor partner loyalty employed, they can be at best ineffective and at worst • Want to reward partner investment and commitment detrimental to the sales effort and very costly. From the • Enjoy a more mature or intimate relationship with vendors perspective, good candidates are vendors who: their partners • Want to drive a certain kind of behavior Similarly, loyalty programs are not effective with all • Have the need to implement short-term tactical channel partners. Good candidates are partners who: incentives or promotions • Respond well to strategic loyalty programs • Suffer from poor partner loyalty • Have a desire to minimize the number of vendors • Have mature products well into their product lifecycle product lines carried Similarly, incentives are not effective with all channel • Have a desire to specialize in a limited number of partners. Good candidates are partners who: technologies or solutions • Respond well to tactical incentives or promotions • Have influence over the technology purchasing • Have a choice of vendor in the vendor’s product choices of their customer category • Afford their sales people a high degree of autonomy • Have no affinity to any particular brand in their choice of product portfolio
  2. 2. A Whitepaper from the World’s Leading PRM Specialists, Foundation Network 2 Why Implement Incentives or Loyalty Programs? consistently or else put their job at risk. What is Sales people sell for many reasons; their innate more, you manage them, you direct their actions and competitiveness, their desire to be the best, a need to therefore their performance is itself a direct result of the gain approval from their management and peers and effectiveness of your own management. their appetite for career advancement all play a part. But can these principles be applied to the motivation of But by far the greatest driver of sales activity is financial an indirect channel where none of these latter conditions compensation and benefits. Hence when a vendor apply? Well it is certainly the case that unless you are a employs a direct sales force, motivation is a relatively market leader, channel management by coercion does straightforward affair: not work. And if you are a market leader, such coercion • Pay a competitive salary can only apply to the partner’s business – not their • Pay attractive rates of commission on sales individual sales people. For example, you may penalize a partner’s business by offering less discount and therefore • Offer a compelling package of benefits to the sales less margin should they fail to meet your accreditation person and their family criteria. But this penalty may not be felt by the individual But there are also several other less tangible sources of sales person at all and if it is, faced with weaker margins motivation: and less competitive pricing, the sales person will often • Provide them with desirable high quality products that sell a more attractive competitive product instead. offer competitive benefits Hence, channel sales people must be motivated and • Generate demand and channel it to them in the form incentivized to sell your products especially when, as is of sales leads most often the case, competitive products are available • Own a strong brand behind which they can feel some for them to sell. It goes without saying that partner sales sense of pride to unite or at least form a positive people are just as motivated by money as your own but personal attachment you have little or no influence over what they are paid • Provide them with the sales tools and resources or how they are compensated. Interestingly however, if necessary for them to do their job we review the list of less tangible motivators above, we • Minimize bureaucracy and red tape in order to be an can see a direct correlation between the needs of direct easy company in which to operate and indirect sales people from the vendor. It is through • Celebrate and reward success addressing these that you will have more success in • Be seen to reward performers and punish persistent winning over your channel sales people. failures Implementing a Loyalty Program • Be prepared to offer additional incentives when the I have a British Airways Gold Executive Club Card and business requires its sales people to go the extra mile (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 Sales people sell for many reasons; their innate quarter, I often help them out by taking them up on their offers of double points or free upgrades. I don’t fly competitiveness, their desire to be the best, a need to with any other airline unless there is no alternative and gain approval from their management and peers and I do all this because of a plastic card and a free cup of their appetite for career advancement all play a part. coffee on a comfortable chair. But then deep down, I’m a sales person and I respond well to loyalty programs But by far the greatest driver of sales activity is financial and incentives. compensation and benefits. 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 There are, of course many more but I would guess time. There are a variety of different models but most that these are common to most vendors. What is also consist of two components: common is that direct sales people have a contractual 1. Rewards for the organization obligation to sell on your behalf and yours alone. They are also obliged to meet your performance targets 2. Rewards for the individual
  3. 3. A Whitepaper from the World’s Leading PRM Specialists, Foundation Network 3 Hence, I have seen MDF programs mature in their sophistication to become channel strategic development Personal funds – supporting the development and evolution of a Rewards vendor’s channel – not their bottom line! Long-Term Loyalty Company Rewards Fig 2. Building Long-Term Loyalty Fig 3. Sony’s ‘Sony Rewards’ Program Rewards Loyalty and Rewarding the Organization Supports Tactical Incentives Loyal partner organizations often demonstrate their loyalty by making investments likely to generate or If appropriate, accreditation programs can also play a support the generation of sales of a vendors products: part. If well implemented and managed, such schemes • Skilled manpower can provide additional rewards to the organization in recognition of investments made as above. But as we • Infrastructure will discuss later, accreditation programs must stand for • Facilities more than a plaque on the wall in reception. They must • Training be promoted actively by the vendor to their customers • Support capabilities and they must attract additional benefits for the partner • Demonstration equipment in terms of preferential access to pricing and pricing • Marketing activities support, sales and marketing collaboration, tools, In the not too distant past, vendors would often reward resources and of course sales leads. owners or principles of such loyal partners with personal Rewarding the Individual gifts or other rewards – some still do. Such practices are Programs aimed at the individual (typically) sales person frowned upon today and are in any case of questionable often reward sales with points and points with rewards legality and of limited long-term benefit. of some sort based upon recorded sales: We are all familiar with the proverb “If you give a • Gift catalogues starving man a fish, you feed him for a day. If you teach • Vouchers with a monetary value him how to fish he can feed himself for life.”The same • Vouchers for goods or services rule applies to rewarding channel loyalty. Linkage of • Credit or debit card accounts traditional co-op (MDF) marketing programs with loyalty All such schemes can work well and some are better programs can be extremely effective. By structuring suited to specific countries, and cultures than others. the terms and conditions of such a program around Success can be governed by local pay and conditions, providing active encouragement to channel partners to type of reward, threshold for entry and the time taken / invest in enriching their ability to sell to, market to and effort expended to secure the all important first reward. provide support for your mutual customers, you build But such programs can be incredibly expensive to a firm foundation for growth and help to develop a operate, promote and fulfill. There are many marketing channel eco system capable of growing, maturing and agencies out there eagerly waiting to take your money adapting to changing markets and technologies at your so consider automation in house before taking this side. route.
  4. 4. A Whitepaper from the World’s Leading PRM Specialists, Foundation Network 4 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 Fig 4. Lexmark’s Loyalty Rewards Program Targets the participate. The vendor is responsible for stimulating a Organization and the Individual positive reaction at launch and sustaining the energy and enthusiasm throughout the campaign with frequent, And a word of warning: unless a loyalty program aimed targeted, personalized communication. If you fear that at individuals operates in parallel with one aimed at the you cannot do this, you will be wasting your time and organization they work for, they are rarely more effective money. than tactical incentives. This is because the individual’s attention span is limited and because your competitors The Potential Pitfalls will soon find a way to exploit this with more appealing Loyalty programs are all about rewarding people on an incentives. ongoing basis for doing things they would have done anyway to make sure they don’t stop doing them. Implementing an Incentive Campaign Incentive programs are for getting extraordinary results Tactical incentive campaigns can be much more effective – launching a new product with a splash, doubling sales at helping to mold behavior amongst your channel of a slow-moving product, flushing out old end-of-line where short term goals become paramount eg. selling stock from a distributor. So by definition, they should not out end of line product, supporting a product launch etc. reward sales that you would have made without offering But you must be lighting fast and communicate directly the incentive. Avoiding this pitfall can be tricky but will with the channel sales people. Don’t rely on distributors rely entirely upon your planning and development of or your channel account managers to do it – they won’t the terms and conditions. The worst case scenario – and unless there’s something in it for them as well and by the one that I have witnessed first hand is one in which time they reach everyone with the message, it will all you spend 10’s of 1,000’s of dollars on payouts to the be over. 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 Fig 5. Trend Micro’s ‘Affinity Rewards’ Program Features rather than simply selling the most to the one’s you Multiple Tactical Promotions & Incentives already had?
  5. 5. A Whitepaper from the World’s Leading PRM Specialists, Foundation Network 5 Strategy, Planning and Process Automation Many 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 Fig 6. Foundation Network’s RelayWare Software as a Service to your goals and well planned strategy for getting (SaaS). Provides All of the Tools Necessary to Automate and your there. How does the incentive or loyalty Manage Your Loyalty Programs and Incentives strategy fit with your other business strategies – is it complementary or is there a conflict. How best can it It is often this last issue that draws our customers be aligned for consistency? to Foundation Network and to RelayWare. Like any It is also critical to establish a concrete set of business other business initiative, these rely upon efficient and rules for the campaign or program: consistent execution of often complex processes. As a • Which customer type are you targeting through your result, effective execution of a successful incentive or channel? loyalty program is beyond the means and resources of most vendors. As a result, they are often outsourced to • Which partner type will be allowed to participate? expensive marketing agencies who rarely do a better job. • Who will you target – sales, marketing, management? Business process automation and program management • Which product / service type will be eligible? by a suitably equipped Partner Relationship Management • Will you impose any volume / value thresholds? (PRM) system is the only proven and cost effective • Will you require proof of sale to corroborate claims? solution and is fully supported by RelayWare. • From what source will you obtain proof or sale or sales data? Beyond Incentives and Loyalty Programs As we have already discussed, channel partners; both • What happens in the event of cancellation or returns? organizations and individuals can be overtly motivated • How will you handle T’s and C’s variation by country? by rewards. But they can also be motivated by less • Etc. overt and often less tangible benefits that can have just And finally, what business processes will have to be as significant and often a more sustained impact on introduced, implemented and managed to execute the performance. They prefer to sell brands that they know initiative: and trust and that require a minimal amount of selling • Targeting to get the deal. They are also much happier having the • Registration vendor create demand for their products in the market • Approvals without having to do all of the work themselves. With • Communication this in mind, here are a few other recommendations for • Points accrual / allocation motivating your channel: • Claims and redemptions 3. Generate demand and be seen to do it. Whether your marketing budget is $1,000 or $1,000,000 per • Claim validation month, give your channel advance notice of what • Reward assignment you will be marketing, to whom, when and via which • Reward order, book, pack, ship, track and return 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!
  6. 6. A Whitepaper from the World’s Leading PRM Specialists, Foundation Network 6 If you can share your campaign materials with them 6. Give the leads to closers. If your marketing and even let them customize and execute joint campaigns generate sales leads, make sure that they campaigns of their own, all the better. are given to the most appropriate person (a closer) 4. Allow brand-hijacking. Your branding campaigns within the most appropriate partner without delay. do little to drive demand but they do create brand Impose an SLA for lead recipients to respond and awareness and brand association. Partners will prefer contact the customer and monitor the lead until it is to work with vendors whose brand values are closely closed whilst offering your support to the partner to aligned with their own or where they can only aspire close it. Reduce the amount of manual intervention to have such brand values themselves. Quality, within the lead management process in your own reliability, innovation, performance, speed. Think company. Celebrate success and reward closers with about this because if your brand image isn’t one that more leads. your channel may want to share, they will be less 7. Accept leads from partners and reward their inclined to proactively sell and market on your behalf. transparency. If a partner sales person registers deals Share your branding campaigns with your channel in progress with you early in the sales cycle, it allows as well your demand generation campaigns. Let you to offer support or intervene to help win them. them hijack your brand campaign and turn it into a Make the registration process simple and available direct demand generator by supporting co-operative online. Make it easy for the partner to update deals marketing activity. 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 When a customer is influenced to buy as a result of your them. Some vendors struggle to get partners buy in website or closed-loop marketing campaign, direct them for programs such as this due to a lack of trust or towards your partners to fulfill that demand. If you don’t motivation. Make it worth their while, apply your rules for consistently and you will benefit from more have a partner locator tool on your website yet – get new business, greater partner loyalty and a very one. Customers won’t dial your 0845 number and hold comprehensive sales pipeline. for an agent to find out where they can buy, they may 8. Investing in collaborative marketing. “MDF”, “soft dollars”, marketing rebate – whatever you call simply go elsewhere. 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 5. Channel demand to your best partners. When channel balance sheets. So much so that vendors a customer is influenced to buy as a result of your have introduced restrictions, limitations or else website or closed-loop marketing campaign, direct withdrawn it all together. This is a mistake. It is also them towards your partners to fulfill that demand. If a mistake to believe that administering such funds you don’t have a partner locator tool on your website is difficult and time consuming. A good PRM system yet – get one. Customers won’t dial your 0845 can manage these funds with ease and link in to number and hold for an agent to find out where both your financial systems to manage accruals and they can buy, they may simply go elsewhere. Modern credits and your partner portals to facilitate self- partner locators don’t just search on postcode. This service funding applications, approvals, redemptions is because geographic proximity is only one profile and ROI reporting. Giving access to such funding in attribute of many. Such a tool needs to match a disciplined, controlled and administratively ‘low- customer size, horizontal and vertical market, product impact’ manner will encourage proper use and will requirement, value added services requirement and facilitate comprehensive reporting and analysis to so on and it must search against your most recent ensure your get value for money and a good return and most accurate partner database. It should also whilst motivating your partners. offer the customer a choice and notify the selected 9. Keep it simple. In every partner satisfaction survey partner(s) that a referral has been made encouraging I have read, there are a number of consistent stand- them to proactively follow it up. out comments made by partners. They say that they like to work with vendors who are “easy to do business with”.
  7. 7. www.relayware.com Foundation Network Limited www.foundation-network.com The Magdalen Centre info@foundation-network.com The Oxford Science Park Tel: +44 (0)870 601 1090 Oxford UK, OX4 4GA A Whitepaper from the World’s Leading PRM Specialists, Foundation Network 7 There is nothing wrong with being disciplined, a. Respectful well organized and even process-driven but being b. Courteous bureaucratic and forcing your channel partners to c. Consistent endure excessive and painstaking administration or d. Supportive to jump through hoops unless absolutely necessary e. Flexible will demoralize and demotivate them. Before f. Easy to contact applying any practice to your partners or mandating any business process, think first if it will benefit g. Sales- and marketing-led the partner, consider alternatives and if none exist, h. Keen to “do a deal” Needless bureaucracy is the preserve of the market Summary leader. If you are not one, keep it simple! In summary, you can buy loyalty and you can earn 10. It’s nice to be nice. Your corporate culture and it. Earning loyalty is more difficult and more time partner-facing demeanor matters too. Your channel consuming to do but loyalty that is earned is infinitely partners want to be treated with fairness, respect more enduring. Meanwhile incentive campaigns, if well and courtesy. And no-one likes an arrogant vendor planned and executed can deliver excellent short term - I’m sure we can all think of one or two of those! results boosting vendor profiles and sales. In essence But these things really do matter and can make a then: significant impact upon the levels of motivation • Incentives help you to achieve tactical goals your partners exhibit towards working with you. As individuals we prefer working with people we like • Loyalty programs help you to achieve strategic goals or who are like us. As vendors, we should always • A combination of the two works best ensure that we are: 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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