Today, I want to talk about MDF as a practical facilitator for collaboration. Channel partner marketing budget’s are geared around promoting the partner and the things that they sell to their own customers. Few channel partners are philanthropists so if they are going to invest any portion of their own budget in promoting a vendor instead of themselves, there will have to be a very good reason or else a financial contribution by the vendor in question.Market Development Fund or similar programs provide funds to support co-operative partner marketing activities. The diagram shows how this process SHOULD work.
Like all components of a partner program, MDF or similar sub-programs are not suitable in every case and even when they are, they may have to be implemented in different ways in order to get the best results.The important principle of an MDF program is that both vendor and partner should be looking for ways to leverage the other parties assets and multiply their marketing investment to drive demand for products, services and solutions that they collectively offer. There has to be a win-win and a very clear expected outcome for both partner and vendor.
Potential benefits include:- >ROI = > Sales = > MDF - Improvement in the quality and alignment of partner-led campaigns - Improvement in campaign effectiveness- Increased productivity- Reduced fund redemptions - Decreased vendor cost- Virtuous circle
In the 90’s MDF became little more than a bribe. Most propped up the balance-sheets of channel partner who came to rely upon it to stay in profit. As margins fell for vendors and the need for greater financial transparency and compliance became more critical, many vendors tightened up the rules of MDF programs or stopped them altogether. We are not advocates of accrued MDF based upon a fixed percentage of sales. MDF can often be seen as an entitlement in these cases, and it should never be a contractual obligation for a vendor to provide it. The reality is that in the past there was little alternative to these crude approaches. Anything else would have been too complex to manage and would have run counter to anything else on offer in the market. But MDF SHOULD be a discretionary fund to which channel partners apply under strict guidelines for part financing of activities deemed likely to generate sales directly or indirectly for the vendor. It should be positioned as ‘unlimited’ and a partner should be able to utilize it as often as they wish provided that a number of rules are applied.But doing this properly can be complex and difficult to manage. One way of avoiding the complexity that we see very often is outsourcing the problem to distributors to manage on a vendors behalf. In my experience, this approach is typically ineffective, open to abuse, poorly policed and offers very poor ROI. To make it work, you must do it yourself and treat every $ as if it were your last!
Before you start a) to develop a program or b) to revamp an existing program make sure that you plan:What are your goals and success criteria?How much incremental revenue?How many more unit sales?What is the linkage between these and every $ invested etc?What do you want the outcome to be with regard to the partner relationship?The perception of your partner program?The perception of MDF within your own organization?Build a game plan or strategy-How does it align with your own business?-How does it align with industry best practice and competitive models?-Will it be compatible?-Can you implement it etc?What are the business rules...
MDF should be about shared risk / shared reward so a vendor should look to pay no more than 50% towards any campaign or activityPay-out should not be a given and both parties should have a clear understanding of what will define success so criteria should be laid out under which the 50% will be paid subject to achievement of agreed KPI’sYou must get value for money and leverage your spending power so ideally campaigns or activities should be implemented through vendor-aligned agencies through which they (and hence the partner) may enjoy volume discounts thereby minimizing the cost of the initiative to all partiesYou need to be sure that your investment has paid dividends before you pay up so partners should receive no payment from the vendor until after the activity has been completedLikewise, partners should demonstrate that they have achieved the prescribed KPI’s and reimbursement should be made accordinglyAnd most importantly you need to ensure that you generate more profit that you invested and its up to the partner to prove that you did so ROI should be tangible and measurable
To ensure that partners are encouraged to think about ROI for them and you – provide them with a set of campaign metrics. Here’s an example. By walking them through this list and ensuring that they have considered every item to the all important last bullet you will:Help them to plan for rigorously and effectivelyDemonstrate your own focus on ROI
Here is a practical example. In reality only you will know what your GM% is and you need to work back to calculate what your maximum investment can be. In this case at a 10% GM on a $625K total order value, any investment below $62K from the vendor will generate a profit. In reality, you want to aim to invest much less. In this case, we’re investing just $15K or 50% of the total cost of the campaign.The lead conversion rates shown here are just examples, but you will need to look at your own statistics or take industry average to worst case.
Here are examples of the various components of the marketing mix that the vendor should consider under the MDF program. Partner proposals should be evaluated based on the viability of the campaign, which should reflect: An integrated campaign approach that includes several elements of an effective “marketing mix” including awareness, lead generation, qualification, and sales tools.There must be measurable results. And there must be incremental sales and/or demonstrable strategic marketing value to the vendor. Direct Marketing Including e-Marketing, and Direct MailPrinting of direct mail pieces, product flyers, postcard announcements, newsletters, and materials.AdvertisingPress and printed media.Indoor campaigns.Outdoor campaigns, poster and billboard.TelemarketingOut-bound or Telemarketing Use of third party telemarketing agency to implement campaigns.Seminars and WorkshopsVendor-focused seminars or workshops done in conjunction with the Partner and/or third party complementary technology.Training seminars or workshops (advertising, invitations, handouts and other materials).Trade Shows and EventsTrade shows and events run in conjunction with the Partner.Advertising and invitations, seminar materials and handouts to promote attendance. Open-house events.Product Showcases/Expos. Advertising and Media PlacementPromotional activities that involve advertisements in magazines, catalogs, newspapers and journals Media broadcasts on radio and TV networks, videos, "On-Hold" message Online advertising and promotionsInserts or flyers in publicationsWeb Promotions Web and E-commerce campaignsWebsiteTargeted improvements to the Partners website which improve the presentation of or strengthen the sales or marketing capabilities for the vendors products.Web-based purchasing tools for ease of ordering Production and distribution of web banners, product spotlights and other web dedicated pages for NRGI products.Demo / DevPurchase or subsidization of demonstration or development product or third party items required to deploy such equipmentSales Tools and Marketing CollateralAny type of tool that will aid in the understanding and selling of the vendor product line. Tools include but are not limited to brochures, product guides, competitive matrices, training presentations, customer presentations, ROI calculators, web modules, etc.
You must also define what is not acceptable:Business Support- MDF should not to be used in supporting a Partners sales, general or administrative costs.Direct Margin Subsidy or Support - MDF should not be used to lower the cost of products, subsidize margins, fees or interest rates through a promotion or otherwise.Travel Expenses - MDF should not be used for travel related expenses. Entertainment- MDF should not be used for customer entertainment or hospitality events unless a specific business agenda can be clearly demonstrated.
Now let’s look at the aftermath of the campaign. Going back to our example if, as a direct result of activities related to this campaign, the Partner meets the goal of generating an incremental $625,000 of sales and the vendor’s GM exceeds the value of their investment, the vendor will provide a matching contribution of $15,000 (50% of the $30,000 spent on the campaign). Similarly, if the Partner attains 50% of the goal, or generates $313,000 of incremental revenue, the vendor will reimburse the partner $7,500 or 25% of the cost of the campaign. However, if the partner fails to meet 50% of the agreed upon goal, the partner will incur the entire cost of the campaign. Of course you could introduce a simple sliding scale but if a partner is failing to achieve 50% of the goal then you need to seriously question their marketing execution ie their ability to implement a successful campaign.
I have worked with vendor’s who have implemented such a scheme to replace an accrual-based model. Their message: “more control but more available funds”. Naturally, if the MDF spent delivered a better ROI than before then, by definition, this meant more sales and hence more marketing budget. But here is the interesting thing. In reality, we saw significant REDUCTIONS in fund redemptions as some partners lacked the will or capability to adapt to the new model but a significant improvement in the quality and alignment of partner-led campaigns. Such campaigns were considerably more effective than before leading to better results. A virtuous circle and one which has seen massively increased marketing productivity from the partners and massively decreased vendor costs whilst leaving the channel as a whole happy in the knowledge that unlimited funds are available to them so long as they can demonstrate that they will spend them wisely.
Now there is a trade-off. An effective program requires efficient business processes and resources to implement them:AccrualMDF account managementFunding applicationReview and approvalsClaims managementROI analysisRedemptionCreditsClaw-backsReporting & analyticsComplianceIt is because of the complexity that many of our customers have turned to software automation...
How to approachPartner Marketing Programs Best Practice Marketing Development Funds and Co-Op Programs
What is an “MDF” program? Who is it for? Why implement a program? Execution: Prior Planning Business rules Business processes Automation Agenda
A well executed MDF program creates a virtuous circle in which both parties are motivated to collaborate to market and win joint business. What is an MDF Program? Vendor shares the marketing strategy and tactical campaigns
Vendors who: Want to leverage their partners customer relationships Want to leverage their partners marketing investment Have a product-centric business model Can afford it! Who is it For? Partners who:
Want to leverage the vendors brand and product offering
Want to leverage the vendors marketing investment
Want to multiply their marketing budget at the expense of vendor independence
Potential benefits include: >ROI = > Sales = > MDF Improvement in the quality and alignment of partner-led campaigns Improvement in campaign effectiveness Increased productivity Reduced fund redemptions Decreased vendor cost Virtuous circle Why Implement a Program?
Potential pitfalls include: Historic perceptions: Bribery Soft $ Entitlement Accrual Rebate Black hole Complexity vs effectiveness Administrative overhead Outsourcing to distributors Auditing and compliance Cost and poor ROI What are the Pitfalls?
A vendor should look to pay no more than 50% towards any campaign or activity Criteria should be laid out under which the 50% or portions thereof will be paid subject to achievement of agreed KPI’s Ideally campaigns or activities should be implemented through vendor-aligned agencies through which they (and hence he partner) may enjoy volume discounts thereby minimizing the cost of the initiative to all Partners should receive no payment from the vendor until after the activity has been completed Partners should demonstrate that they have achieved the prescribed KPI’s and reimbursement should be made accordingly ROI should be tangible and measurable The Big 6 Business Rules and Key Principles
Metric Definition Cost of campaign Total cost and vendor required contribution Reach Target number and nature of target audience Touch Target number to be ‘touched’ Response Target number of responses Leads generated Target number of qualified sales leads Cost per lead Target cost per lead Sales generated Target number of sales generated Lead conversion rate Target lead conversion rate Cost per sale Target cost per sale Average order value Target average order value Total sales value Target value of sales generated Average order GM% Target average order gross margin % Return on Investment Target ROI as % of revenue and GM Campaign Metrics
Metric Example Cost of campaign $30,000 Reach 10,000 Touch 6,000 Response 300 Leads generated 50 Cost per lead $600 Sales generated 25 Lead conversion rate 50% Cost per sale $1,200 Average order value $25,000 Total order value $625,000 Average order GM% 10% Campaign Metrics Example
Direct Marketing Including e-Marketing, and Direct Mail Advertising Telemarketing Seminars and Workshops Trade Shows and Events Advertising and Media Placement Web Promotions Website Demo / Dev Sales Tools and Marketing Collateral Legitimate Activities
Business Support Direct Margin Subsidy or Support Travel Expenses Entertainment Illegitimate Activities
Reimbursing Claims & Maximizing ROI $625,000 100% Metric Example Cost of campaign $30,000 Reach 10,000 Touch 6,000 Response 300 Leads generated 50 Cost per lead $600 Sales generated 25 Lead conversion rate 50% Cost per sale $1,200 Average order value $25,000 Total order value $625,000 Average order GM% 20% $313,000 $ Return 50% 0% $7,500 $15,000 $ MDF Paid Out
“More control but more available funds” >ROI = > Sales = > MDF Significant improvement in the quality and alignment of partner-led campaigns Improved campaign effectiveness Increased productivity Reduced fund redemptions Decreased vendor cost Virtuous circle Does It Work in Practice?
Processes: Accrual MDF account management Funding application Review and approvals Claims management ROI analysis Redemption Credits Claw-backs Reporting & analytics Compliance Automation is the best solution Managing the Business Processes
MDF programs offer: Increased channel loyalty Improved channel motivation Aligned channel marketing Maximized campaign coverage Increased impact More ‘bang for your buck’ Funded from incremental GM Good ROI... if implemented well Successful execution relies upon: Goals Strategy Automated execution Summary