Ready for the Green Light
Channel Partner Incentives Set to Adapt in the New Normal
The COVID-19 pandemic has shaken up business operations globally, but when any sense of normalcy returns, the fundamentals of transactions should remain. People in the channel partner incentive program industry say they will be ready when their clients and prospective clients give them the green light.
"This crisis is likely to change the world of channel partners in ways that are hard to anticipate," said Ric Neeley, marketing director of incentive program provider Hinda Incentives. "But what is unlikely to change is that both sponsors and channel partners must re-evaluate what their customers value in this new world and find the best way to deliver that value. Non-cash channel partner incentives can then help change the behaviors of the people in the supply chain to deliver that value."
Channel partner incentive programs seek to spur sales or spark behavior, or both. A manufacturer or service provider who relies on distributors, dealers, installers and service technicians to maximize profit uses these programs to increase activity or change methods typically through a system of points that build toward reward levels.
Whether a company wants to build sales volume overall or for a new product, or wants more purchases to come through its e-commerce infrastructure, it needs to know how to best target those who can effect that change and what will drive that target to respond accordingly.
The approach to these programs has evolved over the decades. Recognition, plaques and vacation packages defined the beginning of channel partner incentive tactics, followed by points systems designed to give targets award levels and options, from products to travel to reinvestment in their
The rise of the Internet and digital analytics has enabled customers to be better informed before buying, thus forcing sales teams to adjust their approaches. It also has enabled providers to use better segmentation and targeting, and more granular measurement of program tactics and strategy so programs can be adjusted midstream.
More recently, companies that design and help execute incentive programs have begun to function like marketing agencies, said Lincoln Smith, an executive with HMI Performance Incentives. The same tactics used for inbound marketing—researching target audiences to craft customized content to draw interest and activity—is being used to create tailor-made channel partner incentive programs.
"There are a lot of premium reps or product people for promotional giveaways, but organizations really need professionals to figure out what their goals and objectives are, what type of data should be collected, how it should be analyzed, who the audience is, what type of theme, what type of reward program, how do we make pivots," said Smith. "An agency to design and execute and adjust.
"Twenty years ago I probably would have been talking more about products. We're impartial toward the reward being delivered, we're more interested in what your goals are, what your objectives are, and how we are going to drive the business outcomes that are meaningful to your business."
Smith's company has a methodology with four phases: exploring, envisioning, execution, and evaluation. Exploring involves nuances like goals, objectives, how a client goes to market, who are the proper points of influence and what competitive programs exist.
"Also, what customers or which segments will be most meaningful to put your attention on," Smith said. "An organization should put a lot of time on the front end with a professional loyalty or incentive solutions provider to dive deep. Are all customers created equal? We know that's not the case."
Todd Eber is a marketing director for a supplier of equipment for many trades. Eber used a channel incentive program when he worked for a company he eventually bought, and which was bought by the company he works for now. The supplier in the past year began an incentive program of its own, due in large part to Eber's past experience and belief in the power of channel partner incentive programs.
He's used two different incentive program consultants, and said the decisions to pay for firms that specialize in incentive programs were based on a simple tenet: He wants his company to focus on what it does best.
"These companies are experts at creating customer engagement and interest," said Eber. "We have some intuitive ideas that make some sense, but when they're focused on this full-time all the time and with multiple programs throughout the country, they have a very good idea-generation part of their business that can really help customers have interest in something that you're doing.
"We've always wanted to pay a premium to make sure we have a company that is going to help us make this successful, not just help us do it. Businesses have so much going on and customer care is so critical, so we need those types of experts and partners that can focus on one area of something that we're doing and making sure we're the best that we can be at it, because left to our own volition we won't be the best we can be. We just know that, because we have too much going on."
Smith said the exploration phase's key quest is to understand the target audience's capacity for increased sales. Some customers have greater room for growth, for example, so it's important to segment the customer base to figure out where the best returns are.
"It could be across the board and everyone can participate, or you can make very specific invitations or very specific criteria to target a benefit to a specific customer segment," said Smith. "You can be very surgical about who participates."
Neeley said before the strategy and tactics begin, stakeholders must know the program goals, roles of the people you need to influence and the budget. For instance, he said, if the goal is to get a new product into the marketplace, a company has to get the attention of the channel partner but make it aware of the new product and its benefits to its customers.
"That means spending more resources on communications and training," said Neeley. "Compare that to a goal of increasing market share for a well-known product that is currently in second place. To achieve that goal, you might focus program participants on targeting users of a competitor's products and switching to yours."
Neeley said it's much different getting the time and attention of a company owner to gain inventory space for a new line than it is to encourage a phone rep to offer customers who ask for one brand of paper if they're willing to substitute another.
"The role of participants who can influence your goals is key to your strategy and tactics," he said. "Participant income is also key to the award investment you'll need to incent the new behaviors."
Neeley uses a simple formula to think about award payout and its impact on behaviors. He said that to drive performance, participants need to see an opportunity to earn 3% to 5% of their total program period compensation. For example, a participant earning $100,000 annually would require an opportunity to earn $750 to $1,250 during a quarterly program to capture their discretionary time and attention.
"This doesn't mean everyone in the program has to earn this much, just that participants must see this as an earning opportunity based on achieving a reasonable and attainable goal," he said.
A different Neeley scenario highlights how to choose which channel partner personnel would make the most impact on a company's goals. Suppose a company wants distributors to boost purchases by 10% from July 1 to December 31. The distributors are non-exclusive, and most carry a competing product. Most also split their purchases between the company's product and the competitor's. Each distributor location has a manager responsible for buying inventory for their location. That manager could most directly impact the location's purchases fastest.
The incentive program might set a goal for each location manager based on their past purchases and reward them for achieving and exceeding that goal based on their purchases between July 1 and December 31. On average, the goal is 10% over their previous purchases, but that could be adjusted based on the manager's total volume with the company.
"It's easier for someone currently doing lots of business with you to grow by a smaller percentage increase that translates to big volume," said Neeley. "In contrast, a location doing a smaller volume with you might need to grow a larger percentage to justify the award payout to the manager."
In this simple example, managers achieving their goal might earn $750 in points redeemable for awards. Neeley suggests including some additional stretch levels to encourage greater participation—110% of goal earns $1,000 in points, 120% earns $1,250.
Back to Smith's methodology after exploration, envisioning and execution. Envisioning includes concepts for the program based on the partner profiling, while execution includes marketing communication and onboarding.
Smith said if the target for motivation is a partner principal, the rewards should be for the entire company, such as education or training or reinvestment in the partner through equipment purchase discounts, for instance. If the target is commissioned employees, rewards should involve recognition, entrance to a club or status, or travel with a partner on a trip during which they're recognized.
In concert with targeting of personnel to best reach a goal, a company must decide in which segment of its customer base to invest its efforts. Smith divides customers into 20-60-20 groups: the top 20%, the middle 60%, and the bottom 20%. The top 20 has to feel like it's appreciated and not being ignored while a company tries to get more from the middle 60, said Smith.
"That middle 60 has that capacity to shift additional purchases or there's a lot of discretion on where they're going to end up pushing their future purchases," said Smith. "They're giving me lesser volume (than the top 20), lesser frequency."
Smith said profiling is crucial in prioritizing focus. He gives an example of a customer that spends $250,000 yearly on equipment, but just $100,000 with the company Smith is advising. He knows from profiling that the customer has a capacity of $100,000 that could be switched to Smith's client.
An example strategy, said Smith, would be to offer a reward point for each dollar the customer spends up to a goal set by the program, then 5 points for each dollar spent once the goal is attained.
"I'm willing to invest in that because my incremental gross margin will cover the reward value as a percentage," said Smith. "It's about understanding who your customers are and evaluating what their capacity is and putting together an incentive and communications to really engage those customers to give them a reason to shift more of their purchasing power to you."
The final phase is evaluation, and it's ongoing throughout the life of the program, said Smith. Eber said one of the major changes in the time between his experiences with channel partner programs is the rise of data gathering and analysis.
Eber said he recently did a review with the incentive program advisor of the first 90 days with the new incentive program.
"This is all based on their decades' worth of experience in the industry, to say, 'OK, you're early in the program, here's where our other customers would be from a benchmark perspective, here's some things you're doing well, here's what we can do better, and here's how we should do it.
"The analytics that come with these partners and their platforms; we can measure engagement in a variety of ways real time, updated daily all the time, and tweak our reporting. For the first 10 years before the online element, our ability to measure engagement was very archaic. Now you can look at all types of elements of their behavior, purchase behavior, interaction with the site: Are you pulling in pieces and events and behaviors from your omnichannel experience? Are they buying online? It's really a game changer. We have customers very engaged, not very engaged and stratifications in between, and then different tactics that you can go after each of those categories and measure that success."
Neeley said a program's budget is also vital to determining strategies and tactics. Sponsors with a closed-end budget or one where you can only spend a fixed amount regardless of results limit themselves to competitive rules structures: structures in which the participant must compete against others for a limited number of awards.
While competitions work well with salespeople, by their nature you have winners and losers, said Neeley. An open-ended budget or one that rewards based on performance maximizes participation. This allows you to set individual goals with a certain award for hitting the goal.
"A competition might require a participant to achieve a 5% increase just to compete with others for a few awards that they may or may not receive," he said. "An open-ended program might require a participant to increase sales by 7% to earn a specific award and keep them growing with a bigger award at a 10% gain and a huge award for 15% growth."
Neeley offered a real-world example to illustrate an incentive program from start to finish. The client was a construction equipment company that was the market leader with the highest total sales in the industry. Its brand name was equated to quality and superior performance, but in one product category, it was No. 3. It had entered that category a little later than its competitors, and that had cost it share.
It marketed through an exclusive dealer channel, and ran an annual travel program for top dealer principals and operated a quarterly sales incentive program for dealer sales reps based on product sales. Reps earned points redeemable for awards in a catalog. The company's goal was to increase market share in that product category.
Neeley's company started by looking at the people who could impact growth the most.
"The channel reps would have the greatest impact on share in the shortest time by selling the category to the end user, but by showing the dealer principals how important the category was, the client could gain the principals' backing to drive the reps' sales efforts," said Neeley. "We started by adding market share of the target category as one of the principals' goals for earning the trip. This got their attention and gained their immediate support."
Next, Neeley's firm developed a communications and training plan for the channel reps to improve their awareness of and skills in selling the product. The program offered reps points for creating a list of target customers for the product, more points for a proposal, and even more points for product sales.
"This combination of top-down pushes from the principal, knowledge-building of reps, reinforcement of the activities that generated sales, and then earnings for each unit sold moved them from third place to second in just 18 months," Neeley said.
Eber said if he bought another company, he'd use incentive programs again. His current company's program is focused on aggressive sales growth from partners and encouraging them to use its e-commerce platform. He said results thus far for his current company show three to four times growth for enrolled customers, and while he isn't sure yet of ROI, he said there's a clear difference between customers who are enrolled in the program and those who aren't.
For companies that haven't yet begun an incentive program, Eber suggests using an adviser, one that has at least two important areas of expertise: technology and merchandising.
"You have to have a partner that has a good technology piece of their business and their platform has to be user-friendly because ultimately that's where they'll transact," Eber said. "That's where they load points, that's where customers go to see their activity, that's where they go to redeem their points. It's also the marketing engine of communicating directly with the customers with updates and tracking and promotions and learn-and-earn opportunities.
"They have to have a very strong merchandising arm. The catalog of tangible items needs to be rich, deep, current and create interest so there's value there. They almost act as a travel agency to a certain extent. They're coordinating travel and events, they create the packages, they manage the pricing and the flow. They set up all the buying relationships. That's a big element. If you're going to do all that in-house that's a pretty expensive endeavor."
Smith said while the post-COVID future is uncertain overall, there should be comfort in fundamentals and hard work.
"Budgets have been slashed, profits slashed, but there still is a place for these business initiatives to help drive results," he said. "The organizations that understand that this is a lever they have, properly designed, it can make a big impact on their business. Stay super close to your top customers—what they're feeling, what their needs are. If there's anything that will be shifting at all, we want to be on top of it. Make phone calls every day to your top customers and let them know we're here for them. Communication needs to go up—focus on the top 20, and show them the love."