Cutting the best deal
1 April 2005 | 0
Encouraged by the prospect of boosting their bottom line, most vendors are more than happy to support those resellers who are taking their products and services to market. This support can take a variety of forms including sales and product training, lead referral and marketing assistance. Sales and product related assistance is a relatively straightforward affair: provided by the vendor, it is freely available to their resellers. Marketing assistance, however, can be a more complicated undertaking.
There are two generally accepted methods of providing financial marketing support. One is the marketing development fund (MDF), the other the co-operative (co-op) funding model. The essential difference between the two being that co-op funding is retrospective, and is based on the value of previous sales, whereas MDF funding is forward-looking and is meant to give resellers the leg-up they need to close the deals.
Typically, under a co-op agreement, resellers are given a percentage of the value of their sales for marketing purposes. It is then up to the reseller as to what they use the money for — be it advertising or a direct marketing campaign. MDF is also intended to fund marketing activities, but it is not based on previous sales. MDF is often given to new resellers who have yet to generate significant revenue in order to help them bring in the deals.
Arguably, co-op funding is the most attractive option for vendors, as the reseller has proved his worth to the company and any money handed over has been earned. MDF is sometimes regarded as nothing more than an additional incentive to attract and retain resellers, dished out on a first come, first served basis to whoever asks for it.
In practice, MDF rarely operates in this way. More often than not, resellers requesting MDF assistance have to present their ideas to the vendor in question and demonstrate how they will help to generate sales leads. Also, as many vendors have been forced to reign in marketing spend due to an uncertain economic climate, resellers are now having to go the extra mile to prove why their ideas should be backed. It is probably true to say that vendors who have opted for the MDF approach run a greater risk, after all the true value of a marketing initiative can only be judged once it has happened, but those resellers who don’t use the money wisely initially will find that vendors are less than willing to invest in their ideas in the future.
Although co-op funding may seem like the safer bet for vendors, it does not suit all resellers or vendors alike. Well established channel partners with a sound customer base are most likely to benefit from co-op funding as they are in the best position to bring in sizeable deals. For smaller resellers who have yet to make their mark it is a chicken and egg situation — they can’t close sales without initial marketing assistance, and yet they can’t get marketing assistance without first generating the revenue.
Occasionally, vendors with a two-tier channel model will pay any marketing assistance funds to the distributor and allow them to decide how the money is spent. The danger here is that there is limited control on how the distributor then chooses to allocate those funds. Often it still requires the vendor to work with the distributor in question to decide how funds should be distributed in order to ensure it is done in a way that reflects the vendor’s policy.
In terms of which is the best approach to take, vendors should be prepared to be flexible. Channel partners come in various shapes and sizes, and what works for one may not suit another. As a result, a number of vendors are offering both MDF and co-op funding to their resellers, depending on their background and how well established they are in a particular field. In order to flourish, vendors need to invest in their resellers, but it has to be a tailored rather than blanket approach.
In return, resellers should be prepared to demonstrate their marketing aptitude and commitment to a vendor if they expect to benefit from support of this kind. Contrary to the opinions of some, marketing funds are rarely offered as an added bonus to be used any way channel partners please, especially in today’s economic climate. Resellers have every right to expect comprehensive support from vendors, but they should also be prepared to show how that support is being used to everyone’s advantage.
Martino Corbelli is director of marketing with SurfControl, a provider of Web and e-mail filtering tools.