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Less Is More

Tough times? Time to re-evaluate your incentive strategy!

by Kathleen Kiley, Editor, Channel Management Insights 

Times are tough, sales are down. Vendors are relying on their channel partners to sell more as they cut back on their own direct sales and marketing efforts. So what is the first line of defense in times like these to help assure an active sales pipeline?

A sales incentive program.

While a sales incentive program is clearly a reasonable response, a poorly designed program can result in simply throwing good money after bad.

Unfortunately, "pouring sales incentives on top of the glut of incentives that already exists is increasing marketing expenses and confusing channel partners", says Craig DeWolf, vice president of sales and marketing at CCI in Novato, Calif. "Chances are vendors are spending enough now, but not getting the results they need. Maybe it's time to review strategy and make adjustments to get more effective and efficient results."

Review your present incentive strategy

"Many large vendors have as many as 50 programs targeting the same resellers, which creates confusion and adds clutter," DeWolf says. "Every time you start a new incentive program, it takes money to create the infrastructure, and the vendor has to let people know that the program exists." Complicating matters even more is the fact that several vendors are targeting the same resellers with their own plethora of incentive programs. So, while resellers support dozens of vendors, there are typically less than five vendors that are strategically core to their business. Even then, having a complete grasp of all the programs available to them, including a complete understanding of all the benefits and administrative nuances, can be overwhelming.

"It's very difficult to build awareness and establish momentum behind a new program," he says. "Sometimes you're better off salvaging what you have in place by determining how it can work better to achieve your goals." So before you embark on the development of a new program, consider the programs you have in place. Can they be enhanced to help you achieve new goals?  There are considerable time and effort involved in creating a new program, getting management buy-in, developing a program administration infrastructure and creating awareness with potential beneficiaries. "The costs associated with program design and development are often overlooked when considering the breadth of expenses, management time and opportunity-costs associated with launching a program," DeWolf points out. "This can impact the overall effectiveness of a program as well as delay the time-to-market".

Incentive programs may target every level of the chain: distributors, the reseller entity, the reseller sales representative and the end-user. Each can be a viable target for your program -- either individually or in combination. It's generally regarded that focusing incentive programs to influence the consumer purchase is best, but it is generally more costly and time-consuming to do so with each step down the demand chain.

So when designing a new incentive program to spur sales, consider the following:

• Are the program objectives clear?

• What are the barriers to sales success that an incentive program can help overcome?

• At what level of the demand chain do these barriers reside?

• How will the program need to change behavior?

• What is the success criterion tied to each objective, and how can it be measured?

• Is there a program in place that can be modified to overcome these barriers?

Short on cash? Consider non-cash rewards

One of the biggest trends is the shift from cash to non-cash rewards. Such soft rewards can include MDF funds, or training credits or service credits as alternatives to cash or credit. These alternative rewards may be less costly to you, but retain a high perceived value for program participants at every level. In addition, structured properly, these rewards can be structured as "expense" items versus "Contra Revenue" which will make your financial department happy. Plus, such rewards will create momentum for future sales success that comes with larger MDF budgets or more comprehensive training. Finally, often the use of soft rewards defers the expense. For instance, training or MDF expenses are often not incurred until well after the initial sale.

Success in 3 words: Execution, execution, execution

Despite big investments by many companies in bolstering their incentive programs in this down economy, not all will succeed. "The biggest barrier to program success is not in program design, but in program execution," said Mr. DeWolf, drawing upon his quarter-century of experience in the business. "You would be surprised at how the little things can add up to make or break a program. While many a potential faux paux seem obvious, that doesn't stop marketers from making them." Here are some examples:

Poor communications:  Despite posting a program on a Web site or sending out emails to prospective participants, don't assume that your partners are aware of the program. You have to make a concerted effort to over-communicate your programs especially to those stakeholders who are most important for program success. Consider an acknowledgement from those partners such as pre-registration or a fun "quiz" that validates program understanding so you know who's on board early in the process.

The program doesn't align with a reseller's business model: Many companies have designed SPIF programs to influence their resellers' sales representatives only to subsequently discover that such vendor-developed SPIF programs aren't endorsed by key resellers. Previewing your program with key stakeholders (or pre-testing) will help uncover this in advance.

The program design and administration are too complicated or confusing:  The basic rule is to keep it simple, which means your program should be easy to understand, and easy to participate in. Don't make the rewards too confusing, and don't make your proof-of-performance requirements too complicated.

Getting trumped by competitors: If competitors (direct or indirect) are offering richer or otherwise more compelling promotions, it will be harder to get mindshare from the benefactors. Indeed, being in this position may hurt more than help.

Tracking program success

Vendors aren't necessarily correlating the sales results of a program to evaluate the program's true impact on sales. Would those same sales have occurred even if you didn't offer an incentive? How can you tell? Here is a suggestion that DeWolf offers to identify your true "lift" from the promotion.

"First, isolate sales success as a result of the promotion. Then compare that sales data to a ‘control' benchmark. The benchmark can be in the form of sales from a prior period, other geographies or sell-through data from partners who were non-participating in the promotion. The key is to minimize all the variables as much as possible between the ‘control' and ‘promotion' sales results." It is possible to do this through modern point-of-sale-solutions.

When evaluating program performance, it is important to gather qualitative feedback of program performance from key stakeholders. What did they like about the program? What did they dislike about the program? Ideally, this info should be obtained from both program participants as well as non-participants as often the learning will be more valuable from the latter. "This subjective input is invaluable in the definition of best-practices to aid in the development of future programs as well as the evolution of current promotions." Says DeWolf, "It's often the little things that make the difference between a good program and a great one."

Craig DeWolf is vice president of sales and marketing at CCI, a Channel Management Software and Service firm headquartered  in Novato, Calif.

Kathleen Kiley is a New York-based journalist.