Partners Aren’t Like Retail Shoppers
Vendors seeking to spur channel performance need to focus a lot less on compensation and a lot more on ‘ease of doing business.’
By Larry Walsh
Every day, my mailbox (you know, the physical one hanging on the side of my house) is filled with coupon books, special offers, and preferred shopper rewards. Most are one-time offers, limited discounts, and exclusive product offers. My favorites are the “one-day sales” that seem to happen three times a week.
We consumers are bombarded with incentives to part with our money. Rebates, double-discounts, loyalty rewards, and free gifts. When strolling down the supermarket aisles or wading through clothing racks, we’re presented with unadvertised discounts and falling prices.
In our “always save a buck” society, we’re conditioned to look for savings. We can bid on hotel rooms, look up invoice prices on cars, and negotiate the cost of virtually all durable and nondurable goods.
That’s the way we treat consumers to get them to part with their money and buy a few more units of whatever we’re peddling.
Too often, vendors treat their partners the same way. To push specific products, vendors offer rebates to increase partner compensation. We incent salespeople to push specific products, so we give them spiffs. We offer profit enhancers in the form of add-on discounts for deal registration. And we give higher discounts based on sales volume.
Vendors have operated this way toward the channel since time immemorial. The idea: If partners can make a little more money, they’ll sell more product – and, ideally, more of the products vendors want them to sell.
Over the past year, many vendors have come to The 2112 Group asking about partner compensation. Most times, they want to know whether their discounts, margins, and incentives are competitive compared to those of their primary and secondary rivals. And they want to know if they need to pay partners more. Usually, this question is a result of some perception that partners aren’t selling enough of their products or could sell more than they’re selling already. In vendors’ minds, it’s a matter of money.
Resellers, integrators, and managed service providers (MSPs) do care about money, and they want to know how much they’re going to make on the sale of a vendor’s product. What they care about even more, though, is their business plans and value propositions, vendor processes, and channel-program consistency. They often have little problem selling a product; what’s difficult is working with vendors’ complex, antiquated systems.
Over the years, solution providers have told 2112 how they appreciate vendor incentives, but they don’t think of them as strategic. Smart solution providers – the ones that vendors often say they want to work with – say they have their own strategic plans and product plans. If they happen to sell a product that has a rebate, they’ll take the money. But that doesn’t get them to change their strategic plans or direction.
As part of a study we conducted last year, we asked dozens of solution providers about vendor compensation and its impact on their sales and business plans. More times than not, solution providers said they were more influenced by that mythical “ease of doing business” factor than vendor compensation. In other words, if vendors cleaned up their systems and made it easier to conduct sales, they would move more product.
But to vendors, cleaning up partner-facing systems and improving processes is a scarier proposition than increasing product margins by 50 percent. Vendors have so many internal stakeholders to satisfy and corral that getting agreement on system structures would take herculean strength. Even then, the cost of system overhaul is often in the millions of dollars and would take years of work – a generally unpalatable option given that vendors’ financial performance is measured by the quarter, not by years.
Despite the fact that every channel chief will talk about improving the “ease of doing business,” it’s faster and easier to change compensation models. The net result is that not much changes. Shifts in partner compensation will produce periodic improvements in partner performance, but then things level out and go back to normal.
The mistake vendors make is treating partners like consumers, thinking that incentives are the key to driving long-term behavioral changes. Partners aren’t impulse shoppers – a brand of consumer that drives the retail space – and resellers that do respond to impulse promotions typically aren’t the partners that can sustain high performance over the long term.
Real change in the vendor-partner relationship comes from understanding the partner’s operations and goals, building mutual business plans, and performing in alignment with objectives. Helping partners build better solutions that have greater value to the end customer will drive better performance.
2112 offers programs to help vendors understand partner perceptions and needs, profile and segment partner types for better communications and program targeting, and develop mutual business plans and performance tracking. For more information about 2112’s services, e-mail firstname.lastname@example.org.
Or you could try another rebate program and see what happens. Again.