As I was listening to one of the presentations at Baptie this year, it dawned on me that account managers like me interact with our clients in ways that are very similar to the ways MSPs interact with their clients. We are trusted advisors to CCI’s customers rather than a reseller of services. For example, we support a multi-lingual experience in our software, and what I have found most valuable is to partner with/recommend an industry leader for localization/translation services. But CCI doesn’t resell its services. We make the introduction and encourage the tech vendor to have a direct relationship with the client. The localization company gets a new logo (and might, in turn, recommend us one day) and CCI has added value – everyone is happy, right? We certainly hope so.

Other services we offer customers as a value-add (some free, some for a price):

* Social media recommendations via socialondemand™ and Purechannelapps (a partner)

* Salesforce.com integration expertise and related services (same for ERP systems)

* Research from CCI’s vendor and partner communities (Gartner, Forrester, and other proprietary studies)

* Best practices content based on 28 years in business and deep bench strength (all over our website and ingrained in everything we do)

* Perspectives on how other vendors generally approach specific challenges in their programs and channels (you’re not alone!)

* Job matchmaking if we hear of any vacancies within the channel organizations

Are you an MSP? If not, think about how you can be. The services that surround your core offering can become the “make or break” of your success.

Meg Bingley, Senior Consultant with CCI
After getting her start in media with a B2B marketing agency, Meg developed her expertise in marketing by creating, selling, and executing integrated marketing programs for Microsoft, HP, Seibel, Business Objects, Juniper Networks, Trend Micro, Symantec, and their respective marketing agencies for UBM (formerly CMP Media). Her experience with marketing communications for a worldwide manufacturer provides her with the global perspective needed in our channel world. Meg has been with CCI and our clients in the channel for three years, and has successfully managed the launch of several new and existing client sites to support various marketing and sales incentive programs. She lives in the San Francisco Bay Area with her husband, son, and small menagerie of cats and dogs.

- There was an increase in case study presentations that demonstrate a “bottom-up” approach to program design. More and more, customer needs/buying process and partner business models are driving program structure and offerings versus the “heavy metals” (platinum, gold, silver tiers) and/or “doing programs just for programs’ sake.”

- We saw evidence of progress and the improvement of techniques in the area of program metrics that provide greater insight into both program ROI and partner capabilities and value.

- There is a greater adoption of a value-based approach. Several presentations/discussions emphasized vendors’ efforts to better understand, manage, and incentivize influencers/value-based providers (such as “born in the cloud” partners) and vendors’ roles in facilitating partner-to-partner collaboration to deliver best-end customer results.

- We noticed a growing recognition of the consumerization of technology and its impact on tools and infrastructure supporting channel relationships. Vendors are looking at partners’ user experience in a multi-device world.

- It was obvious that the old “one size fits all” approach in Latin America has not been a very successful model to support partners. Local solutions to a global environment is a key differentiator when doing business in Latin America.

The conference brought many important issues to light that we’ll explore in future Channel Champion blogs. Check back for deeper insights and analysis of the many hot topics involving in the “maturing” of the channel.

Applying this insight to channel programs, I will state that the reason that most otherwise well-thought-out programs fail is because some aspect of that program wasn’t executed properly. We have observed this personally from program to program, vendor to vendor, and channel to channel. The more things change, the more they stay the same— as many executional failings seem to be a constant. Note that I’m not talking about ill-conceived programs that never had a chance of success. Generally, the executional flaws occur because they may cost time or money (in a rush to get to market) or because it was thought that the “missing ingredient” was superfluous or ignored in the hope of creating of a short cut. Don’t let that happen to you! 

Below are the top five executional violations that can quickly derail a well-thought-out program:

1. Communication. Violations here can be categorized as both quality and quantity. In terms of quantity, many marketers dramatically underestimate how much communication is involved to build awareness for your program among your channel partners. Remember, your partners are getting bombarded by messages from one or two dozen vendors. They can only absorb so much content, and overlook the rest. In terms of quality, we find that often the communication isn’t expressed in terms that optimally position the program benefits for your partners as a compelling value proposition (the “what’s in it for me” messaging, as I like to refer to it). Rather, the messaging seems too self-serving for the vendor.
2. Administration is overly complex. If there is one thing your channel partners don’t have enough of, it’s administrative resources. If the cost/hassle of administration is perceived to offset the benefits of the program, this will actually work against you by creating an image of “not channel friendly.” As business people, your channel partners have a lot of programs that require administration spanning their various vendor relationships. The time required to administer these programs is often underestimated by them and deferred due to other priorities.
3. Taking too long to pay rewards or reimbursements. The flip side of overly complex administration for your partner, is overly complex administration processes for you—the vendor. This manifests itself as long approval cycles and/or a cumbersome administration process that delays reward payments. As a general rule, all payments should be made in fewer than 30 days from the completion of the activity—and ideally fewer than 14 days.
4. Interest wanes over time. All programs have a life cycle. Generally, interest is highest in its early stages, only to fade over time as the novelty and uniqueness of the program wears off. For that reason, it’s important that marketers modify programs to keep them fresh— as well as to continue to ensure their relevance as market needs change.
5. The program is assumed to have universal appeal. Your channel partners are each unique businesses. Even if they share business models, they all have different motivations—and vendor loyalties. The significance of this observation increases in proportion with partner size and/or importance.

We are a big proponent of testing all programs where possible. Ideally, such testing can take the form of a field test of all program components, or simply a “sanity check,” by polling key partners (and other stakeholders) in advance of incurring the time and expense of a  full-scale rollout. Also, don’t try and “boil the ocean.” It is better to start with a basic program that has all the foundational elements, then add enhancements later. For more information and other tips to ensure that your program is a success, check out this eBook from CCI.

As stated in an earlier post, all channel marketing is local. For channel managers, the point here is that the partner typically conducts his or her business and promotional efforts in local currency, and that partner is often challenged when dealing with vendors who require that certain transactions be conducted in the vendor’s own base currency. You see, when a business entity is forced to deal in multiple currencies, the eventual fluctuation in exchange rates will rear its ugly head and there will be a winner and loser when the actual payment has to be made. The last few years have been witness to broad fluctuations in exchange rates, and the impact of those fluctuations can be dramatic for channel marketers and their partners.

Here is an example of the impact of exchange rates for vendors and partners:  

MDF is a common channel  program that channel marketers offer their partners around the globe, yet MDF is probably the most impacted by exchange rate fluctuations in that time between when a request is approved and the claim is made. In general, MDF is designed to reimburse the partners for the actual expense of an activity—and that expense has often been pre-approved. In a typical MDF program, weeks or months may lapse between funding approval for an activity, and the eventual reimbursement for that activity through the claiming process. Over the last couple of years, the USD/EURO exchange rate has varied as much as 12% over a six-month period. We’ll apply this variance to a practical application: Let’s say a given marketing request of €6,800 was made by a channel partner located in Italy for a US-based vendor who requires all MDF processes be managed in USD. At the time of the request, the value of the desired activity in Euros equated to $10,000 USD. So, whether the Euro amount or USD amount was entered on the approval form, the vendor accepted the request and locked the approved value of that request at $10,000 accordingly. And, as usual, the partner conducted the activity and submitted a claim for reimbursement several months later. However, at the time the claim was made, the partner’s request for reimbursement remained at €6,800, but the value in USD was now $11,200, due to exchange rate fluctuation beyond the control of either the partner or the vendor—a difference of $1,200. This is a real-world example. In this example, who is going to be liable for this $1,200 difference? The channel partner who was consistent in his request for €6,800, or the vendor who only approved $10,000 for reimbursement?

In a partner-centric financial model, the partner would be reimbursed the full €6,800 originally approved and the US-based vendor would have to expense the extra $1200 it costs to fund that reimbursement in USD. Conversely, in a program-centric model, the $10,000 as originally approved would be the constant, and the partner would actually receive 12% less, or about €6,000. 

As most of you reading this blog are channel managers by profession, it would be easy for me to predict that your emotion would be in favor of the partner-centric model to ensure the partner gets what he is owed. However, in practice, most channel programs offered by global channel marketers are in fact program-centric. This model is not always bad, because what goes up must come down. As a result, there are times when the partner actually benefits when the exchange rate shift is in the other direction (when the USD is devalued). But, as channel managers you never hear about that, do you? And in general, the US dollar is gaining strength as the US economy is growing faster than most of the world. So this may be a source of partner backlash for vendors practicing a program-centric policy for exchange rates.

Ease of doing business is of growing importance to progressive channel marketers. Exchange rate management, particularly as it applies to MDF and other incentive programs, is often overlooked when trying to streamline business processes and improve partner relationships. As a channel manager, perhaps this is something you may want to look into more closely. To learn more about your options, see the CCI white paper entitled, “Financial Considerations for Global Channel Programs,” found at http://www.channelmanagement.com/thought-leadership-access/white-papers-ebooks/).

Support the three value builders when communicating your programs to partners. My channel experience began long before there was a high tech channel (do I show my age?). At the time, my focus was the consumer products categories in retail. Way back then (when phones had dials), all programs targeting retailers had to be presented in terms that were compelling to those retailers: the ability to 1) increase basket (shopping cart) size, 2) increase shopper frequency, or 3) increase the number of shoppers. Those foundational principles still apply in B2B channels, only the terms have changed. “Basket size” becomes average transaction value or margin, “shopper frequency” becomes the number of transactions or number of sales opportunities from any one customer, and “number of shoppers” translates to net new clients. If all your partner programs were communicated to help them understand how you can help them to accomplish one of these three, you will be more likely get their attention. After all, they don’t care what your programs will do for you, they want to know how your programs will benefit them.

It’s your job to build the brand—not the channels’. Your channel partners are not interested in building your brand. Their job is to grow their own business. So stop sending marcom templates that match your graphic standards and messaging with a “your logo here” placeholder—and referring to it as “partner customized.” Marketing materials you provide have to focus on the partner’s value proposition—with your products featured as a means to their end, not as the focus.

Keep it simple. This subject has been covered in depth in prior posts (see “KISS and Tell,” for one). Most vendors make it too difficult for partners to do business with them. Examples of this complexity include complex PRM systems that require different logins, escalation paths that are unclear and vary from program to program, and convoluted partner tiering systems that seem to change without rhyme or reason. Yeah, this may be easy for you to understand, but because your partners are doing business with anywhere from 8-25 other vendors, they are never going to understand your programs as well as you do, so you might as well make them foolproof.

Standardized configurations. The industry is moving to managed services providers (MSPs). Unlike the transaction-oriented resellers, MSPs are seeking to standardize their deployments across common components to streamline installation and support and to maximize buying power. This means that they have a predefined short list of preferred vendors. If your product is in a commoditized category, and your brand has not made the short list for a given MSP, it’s going to take more than a simple incentive program to displace the preferred supplier. The battle for partner “share of wallet” is going to get more difficult as a result. This leads us to….

Partner mindshare is proportionate to a vendor’s ability to add value to the partner’s business—Maybe you represent a product/brand that creates demand in-and-of itself—essentially providing a “pull through” engine for their business. The resulting ability to create end-user demand (or preference) may be valuable enough to partners. However, other vendors in more commoditized categories have to add value other ways. Many of those ways are stated above, others are provided in a separate post, “How to add value in a commoditized market.”

Like your products, partners also have a lifecycle. As your resources will become increasing scarce (your available staff time and money), you must know where to focus your resources for maximum returns.  To that end, it is important to know when you have reached a point of diminishing return on your partners, signaling a maintenance mode or possibly even dropping them from your roster.  The need to manage the partner lifecycle had never been truer than with the current rapid adaption of the MSP model.  Too many channel marketers are hoping their partners can adapt to a recurring revenue model. Hope is not a strategy, and the reality is that many will be unable.  It is not your job to keep your partners in business.  Begin your segmentation process by identifying a key set of metrics for partner performance, and then monitor the trends across each partners over time. For instance, monitoring trending line for number of new deals open, close ratios, average value per transaction, support time, customer satisfaction can be very revealing, just for starters.  Use these metrics to categorize each partner in the appropriate life stage. Use “new”, “growth”, “mature”, “decline”, and “drop” at a minimum–whatever it takes for you to know when to slow investment, and when to recruit new partners.

Creating and maintaining channel programs are not “Set it and forget it”—it is a constant evolutionary process. Those that effectively turn their channel programs into a competitive advantage start with a channel mindset. Applying these basic tenets becomes a routine.  The bigger point: it’s not really that hard, just put yourself in their shoes.

First, there are many possible values that can be inserted to more accurately define “what.”  And all those values should closely align with your program goals and go-to-market strategies. Sales? Dollars? Units? Net new customers? Training new partners? Opportunities created? What else? Lots else! I equate MDF (or co-op, for that matter) with an allowance you’d give your college kid. In this analogy, your college student receives an allowance each month which you hope they spend on things to forward their education (books, room and board, etc.) and not on other things (beer). Your MDF program guidelines then become the equivalent of how you want your partners to spend the money, and how they prove that they spent it on those things. That should be the “What.” Hopefully all the “What” they spend it on, leads to an end game of a good education (or “sales,” when we bring the analogy back to the reality of this MDF).

Earlier, I referenced a 6:1 return, which really means nothing in and of itself because it is relative—it only means something compared to something else. There isn’t one standard ROI “target” to measure MDF success across all marketers. For example, if you’re a manufacturer of a #3 brand within a commodity category (volume) that requires one set of GTM initiatives, you shouldn’t believe your “number” should be comparable to that of another marketer who is producing a leading edge early adapter solution (value) requiring a completely different set of GTM initiatives. That comparison is both unrealistic and unfair. So there is no “magic number” because programs are too different with too many different variables.

There is a bright side, however, because you can get to your magic number…

There are three ways to calculate the ROI of your MDF program:

1)      Impact on overall sales

To find this number, you will have to a) assess what you are measuring: total dollars? Specific product line? Units? Net new customers? Then, b) define the sales period (such as,  year-to-date, last year, last quarter, whatever, but that time period  must consider the effective sales cycle of your product at a minimum). Next, c) create a test group of channel partners who sell those products and use MDF to support those products at a reasonably high threshold during that period (remember, this is relative) and d) create a control group of partners that is roughly the same size and is equivalent in every way except they either don’t use MDF or use MDF at low levels. Finally, e) the relative difference in sales between them represents the LIFT devoted to your MDF program, and the cost you invested in the test group represents your investment to get there. Divide the one into the other and Voila! you have your number. Is that number impressive? I don’t know. But at least now you have something to monitor over time to see if you can improve it—because it is a relative number, after all. This exercise doesn’t require an analysis of many resellers to perform this. Your sample size is dependent upon your overall partner universe, but sampling fewer than 100 resellers will likely be enough.

Sound too difficult? Then there are other ways to evaluate ROI. In fact, you should do these other two anyway, as they are preferred over the previous way as “leading indicators” of MDF effectiveness.

2)      Define how you want your MDF to be spent, and track your level of spending against those initiatives

Now, by “how”, I am not referring to activities (like newspaper advertising or email campaigns), I am referring to “to what end?” as your MDF spending should closely align with your own GTM initiatives. For instance, specific products? Vertical audiences? Solutions?  Would you rather your partners use the turnkey marketing programs you provide to support those efforts? Do you hope they use their MDF for training? All these GTM initiatives provide a basis to track spending (and successes) over time. This may take the form of a “spending by…”  report that reflects absolute investment, as well as a percentage of the total investment. In addition to overall evaluation, results may be compared between partners’ regions to make those results more meaningful.

3)      Activity ROI

The closest MDF inherently gets to a single magic number for ROI is at the activity level—cost per lead, cost per attendee, cost per impression, etc. Most of the activities normally included in an MDF or co-op program can be assigned a metric component (responder, attendee, etc.), allowing you to calculate a “cost per.” Again, the “cost per” number means nothing as a standalone number, but if you can compare it with other activities, or those attained by the more “successful” partners, now you’re on to something. For that reason, we recommend that  you standardize these metrics between activities as much as possible (such as applying cost per lead commonly across email, direct mail, social media, etc.) to understand a relative comparison between activities. This comparison will clearly help any one partner in planning efforts. What’s more, comparing these numbers BETWEEN partners provides a foundation for best practices.

In summary, we recommend that you try to practice all three approaches—then you’ll have your magic number.

Lest you think I’m just making this stuff up, the list itself comes from a recent advisory board meeting of a prominent annual channel conference (per the terms of the advisory board, I am not allowed to give names or details—but trust me, you know of it).  The advisory board was attended by senior channel leadership for vendors in the software and hardware space, as well as telecommunications services and cloud providers—in other words, a good cross section of channel leadership in the B2B technology industry.  The following topics are listed in order of the passion expressed by the members when sharing their issues, as well as the consensus of those issues as echoed by others in the room.

The channels’ migration to managed services was at the center of many of the topics.  Many marketers are talking about the impact of “the cloud,” but it seems that any issues related to that are a subset of the broader managed services model rapidly adapted by the partner community as of late. For reference, “Managed Services” as represented here refers to a dramatic change in the business model for your channel partners and how they earn fees from their clients (from VAR to Managed Services Provider, or MSP). This change manifests itself a number of ways, chief among them being the continuing shift from sales to service, from one-time revenue to recurring revenue, and from on-premise to hosted solutions. By and large, “Managed Services” considers the growth in Software as a Service as well as Hardware as a Service, in addition to other services offered by the partner as part of an overall fee structure. Using that understanding for context, the following list will surely make more sense.

Let’s begin with the specific issues related to the MSP migration:

Growing channel conflict between channel partners and the vendor’s own professional services group—both of which are now in the business of providing services, but how do vendors manage conflict between the two competing groups for the same client?

The vendor’s role in migrating current channel partners to a managed services model. Specifically, to what extent should vendors be involved in helping their partners adapt to the new model versus simply finding new partners who are more adept at applying an MSP model?  This question is even more relevant for hardware vendors who now may have to lease or finance their products to adapt to a recurring revenue model versus a one-time sales transaction.

How do hardware vendors adapt to the shift in sales reporting? Since sales have traditionally been reported as one-time revenue, how do the vendors themselves adapt to a recurring revenue model?  The shift can have a dramatic impact on income reporting to the finance community if suddenly the traditional “big bump” of an initial sale is replaced by “small bumps” for the same deal size that spans months or years.

The shifting division of responsibilities between vendors and partners—for instance, under the cloud or MSP model, who owns the client? Who is responsible for invoicing? What additional responsibilities must a vendor take on to support the model and the transition into it?

Of course, there were also issues discussed that are NOT related to the MSP topic. Not surprisingly, these issues are not necessarily “new” in that most have plagued channel marketers for years.

Technology partners as an emerging sales channel—the growth in this trend seems to span all categories as vendors partner to offer a comprehensive solution, yet how should the programs and incentives be designed to optimize these strategic relationships…do they leverage existing channel program offerings? Or, do they require unique programs?

Best practices for designing and managing global channel programs—what decisions and responsibilities are centralized versus decentralized? While all channel marketing is “local,” just how much autonomy should regional managers possess to design and manage programs within their region while providing the controls and insight headquarters requires?

Optimizing incentive strategies—which programs are most effective and why? Should MDF be dropped in favor of rebates, or visa-versa? The quest for incentive ROI seems ever-present.

Best practices for Joint Marketing Planning—while the promise of JMP works in concept, for many the process is too inefficient and doesn’t necessarily result in the promise of more aligned sales and marketing practices.

We have an opinion on all these issues, of course. And as for the last two, there is a lot of content on the CCI website that addresses them www.channelmanagement.com/resources.  However, at this point it may be more interesting to hear about what’s on your list?

1)The channel is made up of independent businesses—each having their own agenda.

The fact that they are independent businesses directly translates to reduced mindshare for you (relative to a direct sales organization). They have more on their mind than making their vendors happy.  So don’t assume they read your emails, understand your programs, or will “get by” with the administrative complexity of your programs (thereby increasing their administrative burden).

Unlike friends on facebook, quality is better than quantity in your channel community. Make sure your value proposition aligns with their go to market strategy and that your program makes it worthwhile for them to embrace.  The closer the alignment, the more you will be mutually dependent for success . What’s more, your programs should be both easy to understand and easy to administer—even small improvements can help (such as shorter payment and reimbursement turnaround times which positively impact their cash flow).  Lastly, note that ALL partners have a lifecycle—some are shorter than others.  Recognize where each partner falls within their lifecycle for your products and adjust your engagement strategy accordingly. If any of your partners are no longer growing relative to your target rates (including opening more deals, increasing close ratios, using MDF etc), consider whether you should continue to invest in them (which will only result in diminished returns) or put them on a “maintenance” program. Successful channel segmentation is much more than assigning a medallion level based on volume.

2) Channels are about efficiency–they should be the preferred alternative to you engaging customers directly.

Once upon a time when cars didn’t have airbags and people dressed up to get on airplanes, computers were the size of a small house and were sold to large enterprises who could afford them through a direct sales model by someone wearing a blue suit. As the technology became more affordable, and accessible to SMB markets, the channel was born–because the direct sales model was cost prohibitive.  All things being equal, everyone would sell direct if they could. Even Coca Cola would prefer to have someone standing by the entrance of every convenience store to put your favorite Coke product directly into your hand–rather thanlose a sale to Pepsi.  But they can’t, because it is not practical.

Yet, the issue of “channel conflict” never seems to go away.  The trust between the direct and indirect sales teams is ever-present.  According to the tenet, this should not occur—so why does it?  There are several reasons too lengthy to address here, but if it does, your basic channel strategy is flawed.  Either the lines that defines who owns what prospects are not clearly defined, you have too many partners so you’re only competing against yourself, or you do not have the opportunity management/referral programs in place that honor named accounts or that reward partners justly  for referrals in cross-channel sales transactions.

3) Your channel strategy should be aligned with how, and where, your customers want to buy.

The second component of distribution efficiency is to align your channel strategy with the consumer purchase preferences. Your partner makeup should be born from an understanding of your consumer’s purchase habits (throughout the buying process).  For instance, the well published rise of the Managed Services Provider as the new channel darling is no coincidence.  The trend exists because small businesses prefer to buy this way believing it’s a better alternative than investing in comprehensive IS staff or in some cases a costly infrastructure. But it also means that to survive, a reseller must adapt to a different business model relying on a recurring revenue stream with monthly billing cycles, rather than a project based model providing larger sums of cash in advance.  So, to capitalize on this trend, should you find new resellers? Or help your current reseller community convert to a MSP model?  Well, there may be some exceptions, but generally it’s not your job to keep your channel partners viable if their go-to-market business practices are flawed. The percentages are against you if you try.  For instance, on the retail side, the reason CompUSA is dead, and Best Buy is dying, is because they are no longer the preferred shopping outlet for consumers.  Spending energy on keeping them alive is only postponing the inevitable. The adaption of managed services is no different.

Your channel strategy can, and should, be designed to be a competitive advantage. One that efficiently moves your product to end users, capitalizes on market opportunities, and is the result of  many successful partnerships. But it can’t be optimized if these basic tenets aren’t followed.  So, the next time you want to revise your channel strategy, run it past these tenets to see if you are really moving the program forward—or not.

How does this apply to the greater technology channels reseller as we know them today?  Let’s step in to a time machine and take you slowly back to the beginning of technology products channel sales (I was actually witness to this—at the risk of showing my age).

At the turn of this century, Best Buy was the category killer that was credited for the demise of two major giants: Circuit City and CompUSA, plus countless regional chains like The Good Guys (who eventually merged with CompUSA so they could die a slow death together). Earlier still, the now defunct CompUSA was credited for reinventing the category because they were going to steal share from the then emerging corporate resellers, Computerland and Businessland, each featuring a mix of inbound (retail) and outbound (direct sales) strategies.  With each power shift, technology marketers ran scared about how the “new guy” is changing the rules by making unrealistic demands (e.g.: requiring large shelving allowances), and making them wonder “How can we meet the demands of these new guys without alienating our other channels?” .  And the answer to that question is: you have to be where your customer wants to buy, and if it’s in a different store—so be it.

VARs, as a channel, preceded all these entities when it came to being an indirect channel for technology marketers. The genesis of the VAR  goes all the way back when independent channels started in the mid- to late 1980’s as technology products became accessible and affordable by medium and small businesses.  Prior to that, the room-sized IBM enterprise computers were sold directly to only larger enterprises who could actually afford all that computing power (which is now commonplace in the average laptop).  As new devices emerged (like fax machines, personal computers, and printers)  access to technology products moved down-market to smaller companies. The VAR was born because the cost of sales would otherwise be too high for a manufacturer’s direct sales force to be a profitable option.  At the time, these resellers made most of their revenue from margins on the sale of hardware. These new personal computers and related peripherals were only used at the work place—albeit in increasingly smaller businesses.  As technology products became more affordable by smaller businesses, corporate resellers emerged (the aforementioned Businessland and Computerland among them) and were the first category-killers in the technology space. Their emergence was expected to trigger the demise of the VAR as we know it. However, unlike the string of category killers previously mentioned in the retail world, this didn’t happen–despite all the fears expressed by VARs and Vendor’s alike. One may ask: “Could the continued existence of the VAR be a violation of the wheel of retailing”?   I contend that the demise of Businessland and Computerland instead initiated a bifurcation of the technology reseller market, with each extreme appealing to a separate buyer: Retail for personal and SOHO technology, and traditional VAR/resellers for business solutions (this despite the fact that Best Buy and other retailers experimented with outbound corporate sales).

The VAR, however, is going through an evolutionary path all their own.  Over time, service revenue replaced hardware margins and new segments were born. At one end, DMRs kept the pure hardware business. At the other end, consultants provided services only. Other segments fell in between. All survived because each appealed to unique customer needs in a rapidly growing market (bigger pie).

Now, however, B2B technology marketers are experiencing the emergence of what just may be a category killer for the traditional VAR: the Managed Services Provider.  Similar to the reasons that forced the demise of their retailer counterparts, the MSP represents an entirely new business model—one that is built on subscription services, including hardware as a service, rather than one-time contracts.  Migrating to this model will prove to be a challenge for many VARs—and it will likely require a restructuring of their relationship with their vendors and distributors alike.  As a result, the big question facing most B2B technology marketers today is: “Should you help your resellers make the transition?”  It is my opinion that you should learn from the hard lessons demonstrated in the “wheel of retailing” and let the strong survive through natural selection—even if it means replacing existing loyal partners with others who have figured it out. Bold stance, perhaps, but history says that if you have a market for your product, you should sell it through the resource that your consumers want to buy it from. That’s the first lesson of channel marketing—it’s all about the consumer.

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.