Incenting the Channel
How Rewards Can Strengthen Your B2B Relationships
By Rick Dandes
Collaboration with channel partners can be highly beneficial for many businesses, boosting sales, creating new revenue streams and opening your company up to a wealth of shared resources.
Every industry, of course, has a different definition and model of what defines the channel, said Richelle Taylor, vice president, strategic marketing, incentives and recognition, One10 Marketing, Dallas. "Some," she said, "are comprised of dealer networks, others have VARs (value added resellers), distribution chains, online retailers and sometimes, the complex channel models include all of those entities."
No matter the definition, channel loyalty is paramount in all businesses, explained Paul Gordon, senior vice president, sales, Rymax, Pinebrook, N.J. "And here's why: Customers are smarter today than ever before, and thanks to the Internet and mobile devices, have instant access to information. Brands have increasingly shorter product lifecycles, which creates price degradation and an urgency to increase inventory turns. Additional pressure is placed on advertising and marketing spending so that it is accurate in its target and effectiveness."
In both direct and indirect channels, brand loyalty and channel loyalty drive behavior and revenue, noted George Kriza, CEO, MTC Performance, of Chicago. "With the market dominated by companies that influence a sale, loyalty to the individual is often the key to increased revenue and target achievement. Incentive programs are designed to inform, educate and excite channel partners to recommend and sell. Where loyalty may be established at a consumer level by advertisements, social media and proper placement, channel partners influence and often fulfill the final product or sale."
Organizations like Hewlett Packard, Microsoft and Xerox, Kriza said, are highly focused on channel loyalty to exceed their goals, as the channel plays an important role in influencing, selling and managing the transaction. "Unhappy channel partners will recommend competitive solutions, and can drive a decrease in the revenue in the brand they represent," he said.
New Directions in Channel Loyalty
Realizing that more than 70 percent of the world's products are sold through indirect sales channels makes it critical to maintain a connected and motivated channel, said Richard Blabolil, president, Marketing Innovators International, Rosemont, Ill. "A recent trend that has really picked up speed is reaching into the channel to 'make it personal.' The approach focuses on behavioral and emotional rewarding as it relates to understanding what drives each individual to succeed in the workplace."
It is important for companies to set goals, as well as track and implement loyalty programs that create an emotional tie to the business, Blabolil believes. Channel partners (individuals) are influenced by two cultures, the partner they work for and the original equipment manufacturer (OEM) or equivalent supplier. A typical philosophy is that the channel partner is an extension of the OEM's sales force.
A better way to look at it is the reverse, Blabolil suggested. "The OEM is an extension of the channel partner's sales force. After all, the channel owns the customer. You may not be the only vendor, for example, the OEM, and therefore, they can exist without you. The channel is viewed by customers as the expert, and the nomenclature has changed to reflect this—the channel often refers to itself as solution providers rather than value added resellers."
According to research by the Incentive Research Foundation, cash is no longer considered the most effective reward when it comes to the most incentive programs. "I think the biggest trend, which is spanning all kinds of incentive programs," said Cameron Conway, vice president and general manager of Sales Effectiveness for Maritz Motivation Solutions, Fenton, Mo., "is that for a long time, cash was king, Many distributors and dealers would manage their overall compensation for their sellers based on the benefits they'd get from the manufacturers that they represent. The challenge with that, from the provider's side, is it doesn't make them any more loyal to you—it's just seen as a cash payout."
Moving away from a cash payout to non-cash incentives, which can be merchandise, experience or travel, has been a big shift in the marketplace, Conway said, "and we're seeing it within our space. The effect of the non-cash reward stays with an individual as a memory longer than any cash they would get to spend on gas or groceries or diapers that they need to get again the next week."
Award and incentive strategy, as well as execution, in the B2B marketplace continue to evolve, Kriza believes. Part of that incentive evolution, he said, includes automation and a greater emphasis on a tiered reward structure—one that is more personalized and drives greater results. A tiered incentive structure focuses on moving the top performers higher by giving them even greater rewards and spending less time and resources on the lower performers or partners.
Furthermore, Kriza said, "… providing multiple ways to award salespeople in the channel creates ongoing loyalty. Different programs accomplish different objectives. Group travel to a luxury resort at an exotic destination creates prestige and an opportunity to rub shoulders with the sales team's top performers and your executive team. Tangible rewards create long-lasting impressions. The best salespeople are money-motivated, therefore reloadable prepaid card programs continuously and addictively reinforce that drive.
"We're also noticing a growing emphasis in incentive design, including promotion design based on attributes in the B2B space," he said. "Where prior focus was consistently on sales contributors, more of our programs have an increased emphasis on the influencers, such as engineers, designers and developers."