CCI eBook: Optimizing ROI From Your Coop MDF Program

Optimizing ROI from your
Co-op/MDF Program

Your channel marketing program can be more than a cost of doing
business. Start realizing a return on your investment.

This eBook covers best practices and trends that impact the program design,
measurement, and execution of your promotional allowance program. Whether
your company currently has a program or is planning to launch one, the
practices recommended here can be applied to help ensure optimal return on
investment from your promotional allowance program.

CCI
Channel Management Solutions
eBook from CCI: Channel Management Solutions

eBook: Optimizing ROI from your Co-op/MDF Program CCI

2

Contents

3…......... Introduction

6............ Chapter 1: Setting Program Objectives

8............ Chapter 2: Selecting Program Activities that Drive Sales Channel Performance

9............ Chapter 3: Regulatory Considerations

12........... Chapter 4: Program Measurement

14.......... Chapter 5: Trends

15.......... Chapter 6: Turn-key, Pre-packaged Marketing Tools and Programs

16.......... Chapter 7: Execution

17.......... Summary

www.channelmanagement.com


3

Introduction

Channel Marketing is one of the most comprehensive
disciplines in the business environment. Effective channel
marketing extends corporate initiatives across multiple Progressive companies today are looking to their
disciplines including sales, marketing, finance, and sales promotional allowance programs to help them:
operations. What’s more, your sales channel is the conduit
that drives the transaction. Though your channel partners  Maintain and extend existing partner relationships
contribute to, and indeed drive, each of the through co-marketing efforts
4 P’s in marketing (price, place, promotion, and product),
an ineffective program can hamper your ability to optimize  Recruit new channel partners with special “jumpstart”
sales. Considering the importance of your sales channel in allowances
your marketing mix, there are many nuances of channel
marketing that can make your program effective.  Leverage channel budgets to help attain corporate
objectives
Channel expenditures can run as high 30%-40% of the cost
of sales for many marketers, with some companies  Penetrate target customer or vertical market solutions
reporting even higher. Further, Co-op or MDF expenses
most often represent a majority of the channel marketing  Drive transactions at the point of sales by having their
budget. Yet many companies view these expenses as a channel partners promote their products versus the
cost of doing business and not as a strategic driver to help competitions’ (by driving incremental share of voice and
achieve business objectives at the critical point of sale. share of sales)

Promotional allowance programs are front-line tools to  Leverage partner relationships with their existing
help companies achieve a broad range of sales and customers to promote up-sell or cross-sell opportunities
marketing objectives that can both “pull” the product
through the channel (by influencing the consumer) as well  Improve channel readiness by enabling training,
as “push” the program into the channel (by influencing certification, and sales incentive programs
your channel partner to carry or support your product).


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Co-op programs are defined as:

Co-op programs provide eligible channel partners with marketing allowances that accrue as a percentage
of sales. Often, pre-approval requirements are limited and guidelines are well-defined.

MDF programs are defined as:

MDF programs are discretionary funds provided by manufacturers to their eligible channel partners.
The available funds are often not provided to channel partners in advance, but are negotiated by channel
partners and their vendor to achieve specific goals. MDF programs often require less proof-of-
performance documentation than traditional co-op programs, and pre-approval is required.

Either type of program structure may be applicable to any marketer (or even both). Co-op programs are more
often associated with traditional advertising activities in which the costs and proof of performance are easily
substantiated. MDF programs, on the other hand, are most often associated with business development
activities that are considered “contra expense” items as mandated by the Sarbanes-Oxley doctrine (more on
that later); therefore, MDF programs require unique consideration and evaluation before associated expenses
are approved. For the purposes of this eBook, both will be referred to as “Channel Promotional Allowance
Programs” or “Promotional Allowance programs.” The best practices for program development presented in this
eBook are applicable to both.



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The specific application of these practices to an individual
program requires the following considerations:

 Your product go-to-market strategy and the role your
channel partners play in the purchase/sales process

 Your channel strategy and channel segments—how your
program will enable your channel partners’ go-to-market
strategy

 Product category and sales process; for example, whether
the products promoted are considered-purchase products
with long sales cycles or commodity products that sell more
quickly

 Competitive environment and established industry
practices—essentially, what precedent has been set by
competitors and the industry overall

 Geographic scope and local government regulations



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Chapter 1: Setting Program Objectives
Typical Objectives for
Begin the process by setting your program objectives. Promotional Allowance Programs
Many marketers make the mistake of setting ambiguous
objectives such as, “Increase sales.” However, when
 Increase sales, overall or of specific products
objectives are set too broadly, the associated metrics
become harder to quantify. The objectives selected
 Reinforce brand messaging
should:
 Focus spending behind specific products, media,
 Align with, and indeed extend, the individual sales, or events (often used at product introduction, or
marketing, and channel objectives that are in place with “end of life” products)
for the company
 Increase utilization rates (overall, from select
 Include clear metrics and goals (for example, how to channel partners, or from a select geography)
measure “success”)
 Up-sell or cross-sell new products to existing
customers
 Have metrics that can be reported within the
administration processes and management systems
 Help introduce products or solutions to new
you select target market segments

 Define a baseline metric, allowing progress to be  New partner recruitment
tracked for each objective
 Partner enablement



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Promotional Allowance Program Design Criteria

PROGRAM CRITERIA IMPACT ON PROGRAM DESIGN
Program eligibility Which channel partners will be offered the program?
Program period Program duration; annual or quarterly is most common. Will there be special promotional periods
that offer enhanced earning or reimbursement opportunities to partners who perform specific
activities?
How funds are earned Discretionary or earned accruals? On what basis? Past sales performance? Planned future
performance?
Products promoted Allow promotion of all products or some products? Will accrual or reimbursement level vary with
specific products?
Eligible activities How will the activities allowed support your go-to-market strategies? Your Channel Partners’ go-to-
market strategies? What behaviors will you want to reward through reimbursement?
Reimbursement guidelines Fund all activities the same? Or will you bias others?

Proof of performance How do you want your partners to substantiate their performance?
Reimbursement method How will you reimburse efforts? Cash? Credit? Will this be consistent across all partner segments
and activity types?
Creative requirements Are there special regulations for supporting your brand for which adherence will be required for
funding? Will you provide tools? Or let partners create their own?

Align Program Components to Achieve Goals
Once the objectives and associated metrics are defined, determine how they can be achieved through each component of a
typical promotional allowance program. There are many components to a program (beyond the funds and activities) and each
may be manipulated to help achieve your objectives. When considered in aggregate, the criteria discussed in the above table
present a broad palette of opportunities to help you attain your program objectives.



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Chapter 2: Selecting Program Activities that Drive Sales Channel Performance

From the previous table of program criteria, “how funds are earned” and “eligible activities”
will have the greatest impact on attainment of objectives. Awareness

The eligible activities you select for reimbursement should align with the following points:

 Your go-to-market strategy (how you want to represent yourself in the marketplace)
Interest
 Your partners’ go-to-market strategy (how your products are sold through those channels)

 The buying process (influencers, decision makers, and due diligence required to purchase
your product)
Desire
To that end, the activities you choose should leverage each step normally associated with
the buying process (Awareness, Interest, Desire, Action). Below is a list of reimbursable
activities often associated with promotional allowance programs.
Action
Marketing Communication Business Development Partner Enablement

Advertising Demo Programs Training & Certification
Direct Mail Telemarketing Champion Facilities
Tradeshow Events
Literature Purchase/Sales
Catalogs Incentives
Merchandising


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Chapter 3: Regulatory Considerations
Legal and financial regulations must be considered
in the design, execution, and accounting of
program expenses. The regulatory guidelines
discussed here represent government-imposed
limits and opportunities for your program.
Therefore, both legal and financial counsel should
be involved early in the design phase, and long
before your program is announced to your partner
community. This eBook is not intended to replace
or supersede proper legal counsel to ensure
compliance of your program.



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Sarbanes-Oxley

Enron and WorldCom misreported earnings to shareholders and
Marketing Expense Contra Revenue
engaged in purposeful and fraudulent activities to cover up their
true financial conditions. And thus the Sarbanes-Oxley regulatory Broadcast Advertising Demo Equipment
requirements (or simply SOX) were born. Prior to the SOX
regulation, most companies reported trade allowances as marketing Print Advertising Sales Incentives
expenses. As a result of SOX, many of the expenses charged to these Catalogs Funded Headcount
promotional allowance programs are viewed more as perks, or
simply rewards for sales performance, and should be classified as Direct Mail/ e-mail Recruitment
contra revenue under the guidelines. eNewsletters Training & Certification

Many marketers reacted by classifying all reimbursement expenses Seminars & Webinars
as contra revenue. However, this classification can cause significant Telemarketing
sales decreases when reporting revenue. There are some activities
that can, and should, be maintained as marketing expenses in an Tradeshows
effort to boost reported revenue, and contribute to ROI. To maintain
the classification of your reimbursements as marketing expenses, all
of the following conditions must exist:

1. The payment covers a service by the partner that offers a clear benefit to you
2. The benefit is clearly separable from the sale of the product
3. The benefit could be purchased by you from a source other than the partner
4. You have obtained proof of performance to reasonably estimate true cost

The table on this page represents how reimbursement expenses for many activities might be categorized against SOX
requirements. It is important to note that the activities listed under Marketing Expense do not automatically qualify as
such, as certain accounting and validation practices must be met to comply with the expense classification. Those
requirements are outside the scope of this eBook.


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Robinson-Patman

The Robinson-Patman Act is a US Federal act that was established in 1936 as an anti-trust law to ensure fair trade between
competing retailers by limiting wholesale price discrepancies granted to them by their suppliers. The major legislative purpose
behind the Robinson-Patman Act was to provide some measure of protection to small independent retailers and their
independent suppliers from what was thought to be unfair competition from vertically integrated, multi-location chain stores.
Subsequent amendments specifically include promotional allowances as part of the Act, which many companies were using to
circumvent the law that otherwise addressed wholesale price only. There are many opinions about how the law may be
interpreted, and indeed how it has been effectively enforced. One such interpretation of the law as it relates to promotional
allowances is:

“All competing resellers must be offered similar programs on a proportionately equal basis.”

While it is not uncommon for manufacturers to offer different programs of varying value to different channel partners, it might
be suggested that these manufacturers have interpreted the words highlighted in bold to conform to their program requirements
as follows:

 “Competing resellers” implies that consumers have equal access, so a “government” reseller who doesn't sell to corporate
consumer can qualify for a different structure, as they do not cross-sell to the same consumer base.

 Proportionately equal doesn’t mean equal. Programs can vary by tier, sales volume, the number of checkout stands, or other
measurable criteria.

 “Offered” versus “Promote” allows you to selectively recruit resellers who you want to participate versus simply informing
others of the program’s existence.

 “Similar” doesn’t mean “identical” program structure, rather similar value (for example, a $1 wholesale price discount is
considered the same as a $1 promotional allowance).



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Chapter 4: Program Measurement

Impressions

Responders

Qualified Leads

Attendees

Sales Presentations

# of Units Placed

Opportunities
As stated earlier, each program objective should
have one or more Key Performance Indicators
(KPIs) to help you measure progress towards its
attainment. Specific metrics should be identified
during the program design phase along with the
corresponding source of information. Those
metrics will have to be captured and reported Advertising: Print/Broadcast
within your program infrastructure. a a a
Advertising: Online
Program metrics generally fall into two forms: a a a
Direct Mail
1. Strategic metrics represent business goals a a a
and may include measures such as new Demo Equipment
clients, sales, units, or reference accounts. a a
Newsletters
2. Tactical metrics are tied to specific activities a a a
and contribute directly or indirectly to Seminar Events
strategic business goals. Examples of tactical a a
metrics are shown in the table to the right. Telemarketing
a a a
Tradeshows
a a a
Training
a
Webcasts
a a a



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It is often difficult to draw a direct correlation between
the more tactical metrics associated with each activity to
the overall strategic goals associated with the ultimate
transaction. This is because there are typically many
distinct contacts required to move a prospect from the As guidelines for your source of metrics,
initial awareness stage through the buying cycle all the remember that:
way to the close. Also, the point in time when activity
metrics are captured (usually during the claiming 1. Inaccurate data is often better than none.
process) is often too far in advance of the actual sales
close date to effectively report on the correlation 2. Even inaccurate data is good if it accurately
between metrics and goals. Therefore, capturing the reflects relative comparisons such as trend
appropriate metrics of your program will likely happen at reporting.
multiple points throughout the sales cycle, using multiple
sources of data. The data sources themselves are of two 3. You don’t need to collect data unless you
basic types: know how it will be used.

 Reported data from your channel partners themselves, 4. You should understand the limitations of the
preferably substantiated through channel account data, and consider the impact of that data
managers. on your reports.

 Behavioral data as substantiated by internal or other
third party data. For example, click-through rates,
registration data, data validated through auditing
organizations, or POS sell-through data.



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Chapter 5: Trends

Many marketers are using marketing planning tools to define
their partners’ business goals, associated strategies, and
outcomes for a specified period. These plans are completed
by the partner or account rep in advance of a fiscal period,
and the approval of the plan is pre-conditioned to releasing
funding.

The advantage of requiring such planning tools is that a
manufacturer gets an overall picture of each channel partner’s
challenges, business objectives, and strategies individually and
in aggregate before releasing funds. For companies with
longer sales cycles, planning tools provide a context to record
the strategic impact (and the metrics associated to each) of
each campaign.

The plans are completed by the partner or account manager
in advance of each fiscal period via manual (spreadsheet) or
automated processes (via specialized online applications).
Either way, marketing plan content typically includes:

 Partner objectives for your products

 Barriers or challenges to overcome to achieve those objectives

 Business strategies for the fiscal period, including forecasted business outcomes

 Planned tactics, including costs and forecasted metrics for each activity


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Chapter 6: Turn-key, Pre-packaged Marketing Tools and
Programs

Many manufacturers are offering turn-key advertising and marketing
programs that both:

1. Promote the vendor’s offering and support established brand
and messaging guidelines, and

2. Allow the channel partners to reflect their own positioning and
value-added services.

Often referred to as “co-marketing programs,” these programs most
typically take the form of templated Marcom materials spanning a
variety of media types.

Smaller channel partners are often unsophisticated marketers and
use such materials as a solution to their promotional needs. Larger
partners may also benefit from these co-marketing efforts offered
from their vendors in an effort to attract new customers, or cross-
sell existing customers.

Typically, the development of these materials is funded by the
manufacturer (for example, the templates themselves), while the
execution of these programs is funded by the channel partners
through the promotional allowance allocation (for example, printing
or media costs).



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Chapter 7: Execution

Programs that were meticulously designed often fail in their execution. Below is a summary of some of the issues marketers
have with their program after it has been launched. Associated with each is a possible remedy.

ERRORS IN EXECUTION REMEDY
Program perceived as too vague or complex. Clear, concise guidelines for program participation
Or, difficult to get funding approved
No clear benefit to the program; no clear Objectives not properly identified and/or source of metrics not universally implemented or
ROI available
Payments take too long Cash flow is the largest concern for most businesses today; as most programs are pre-funded
by channel partners, reimbursement should be prompt – fewer than 30 days from claim
approval
Payment errors increase expenses, such as Systems do not accurately check for duplicate claims
paying for the claim twice
Poor or delayed follow-through Program administration should follow up within 48 hours for all special requests
Failure to get partners to utilize the program Survey partners to better understand your program alignment with their go-to-market
strategies. Also, make sure adequate training is in place to ensure uniform understanding of
program benefits and administration. Consider joint planning with larger partners through
high-touch Channel Account Managers



17

Summary
About CCI
The practices recommended in this eBook will help you realize
CCI delivers comprehensive incentive solutions to optimize
improved ROI and greater participation from your promotional
sales channel performance. As an enterprise software and
allowance program. From the beginning, align program objectives services solutions provider, CCI enables channel marketers to
to meet company sales/marketing goals. Also, define and assign manage and measure sales and marketing incentive
KPIs to each objective to measure program progress. programs throughout their demand chain, resulting in
greater spending efficiency and improved program
effectiveness. CCI provides a combination of on-demand
Design programs and optimize success by considering channel
software, professional services, and program management.
segments and the go-to-market strategies of each. Be aware of
the buying processes of your end consumers and the competitive CCI’s Professional Services team applies best practices to
environment and industry practices in which you operate. From a define and deploy programs that meet your business goals.
compliance standpoint, consider appropriate legal and financial Equally powerful is CCI’s software. Delivered as SaaS, CCI
automates your channel programs and partner activity for
regulations prior to launch.
increased visibility, measurement, and ROI. Once deployed,
CCI Program Management delivers services such as contact
Remember that execution is as important as design. Provide clear center support, auditing, and payment services to ensure
program guidelines and comprehensive training to all program operational efficiencies.
stakeholders upon program launch. Administrative practices and
CCI is proud to work with market leading companies in
systems should automate program processes, enhance reporting,
technology, telecommunications, and entertainment, such
and streamline turnaround time. Continuous improvement is also as Autodesk, Qwest, SonicWall, Sony Playstation, and many
key. Evaluate and evolve your program against program objectives more.
at least once per year to ensure continued partner engagement,
goal attainment and overall program success. For more information, contact us:
info@channelmanagement.com


CCI eBook: Optimizing ROI From Your Coop MDF Program

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