* SiriusDecisions has identified clear definitions for – and differences between – co-operative dollars and market development funds
* Not only do many b-to-b organizations commonly confuse the terminology, they lack guidelines for the use of what should be different funding options
* If clear objectives and strategies for the use of each type of funds is not established, program measurement will be extremely difficult, if not impossible
Over the years, we have often talked about the confusion that reigns in b-to-b organizations over common definitions, and the trouble that results from using very different terms interchangeably. Whether it is lead generation and lead development, campaign and program, or even webcast and webinar, making sure everyone is speaking the same language is a very basic – but very powerful – driver of marketing and sales integration.
A perfect example of this phenomenon in the world of channels is the use of co-operative (co-op) dollars and market development funds (MDFs). Two distinct weapons in the arsenal of channel marketers and channel managers, these program expenditures can help drive increased partner attention, knowledge and performance if used appropriately. In this brief, we examine the differences between co-op and MDF, and identify the best uses for each.
So, What’s the Difference?
Let’s begin at the beginning by taking a closer look at co-ops and MDFs, and how they specifically fit into the world of third-party channels:
* Co-op dollars. Co-operative dollars are allotted for the execution of specific advertising or marketing initiatives developed by a vendor/manufacturer to partners that are invited to be a part of the initiative. They are heavily planned and structured, and tend to be time-based in nature. Typical co-op programs have differing levels of funding or matching based on the level of sales (e.g. platinum, gold, silver), commitment a partner has demonstrated and/or the partner’s demonstrated sales and marketing capabilities. Most employ standard mass advertising vehicles such as print, radio and television, with included partners opting for a regular pattern of communication to the marketplaces and/or geographies they serve. Though most of the funding is fixed, some partners may have latitude in using a small portion of co-op dollars in a more discretionary fashion (but still must operate according to strict guidelines set by the vendor/manufacturer).
* Market development funds. MDFs differ from their co-operative brethren in a number of ways. First, they are not allotted nearly as systematically, usually on a case-by-case basis to fulfill demand generation or market awareness needs for specific partners, or for short-term incentives to drive desired behavior (in the worst of cases, they are little more than margin bribes to gain attention or preference). They also are much less likely to be connected to cross-partner, highly leveraged efforts; an example would be money given to a single partner to hold a local event for its customers and/or prospects. Finally, since the uses for the funds are much broader and tend to be executed by partners themselves – often without significant guidelines or rules – what becomes of the funds is much more difficult to track, and there can be significant variability in execution quality. Where it is not uncommon for 30 per cent to 40 per cent of co-op dollars to go unused simply because there are not enough partners that have the ability to take advantage of them, MDF allotments commonly reach 100 per cent.
Co-Op Dollars: Key Uses
A key drawback from the partner perspective when discussing coop dollars is the fact that many programs are pushed at them rather than planned with them, and tend to benefit only the vendor/manufacturer and its larger partners. Co-op efforts that have wider utility and are collaboratively planned while maintaining the positive attribute of shared responsibility between company and partner are best, including:
* Account/industry penetration. While many partners may see the benefit of entering the "green pastures" of new account or industry segments, the costs of sales can be considerable. These programs are designed to share costs in an effort to gain traction in new industry segments or accounts; they can be modularized for specific vertical/sub-vertical segments, as well as horizontal targets based on company size, title, geography or other market-independent attributes.
* Two-way strategic initiatives. The strategic nature of co-op funds certainly can be applied as markets and products move through their maturation cycle. For example, a major impediment to the wide-scale adoption and continued growth of product lines is a lack of proper training; a co-op program where a vendor/manufacturer shares in the cost of the build-out of a partner training center is beneficial to both sides; as the vendor can expand training capacity and certification (and in turn its footprint), and the partner can capture training revenue. Smaller partners may be invited to participate regardless of size, provided they adhere to rules and standards for weaving training into the natural way that they sell.
MDFs: Key Uses
While the current positioning for MDFs in most b-to-b organizations is correct in the sense of supporting the day-to-day activities of partners, a lack of process and standards often renders much of this spend worthless. SiriusDecisions recommends four key areas for MDFs to be spent, including:
* Demand generation. MDFs don’t have to – and shouldn’t – be thought of as just dollars doled out. They can be funds spent to generate a stream of qualified leads for channel partners based on co-developed process and potentially delivered through shared systems if the relationship is significant enough to warrant such an investment. This requires work with channel partners around the basics – including target market, demand type, lead definitions/taxonomies and buying processes, as well as qualification, handoff and lead recycling processes much like field marketing must complete with a field sales team. Partner participation – specifically strategic/preferred partners – in the creation of supporting processes and definition, as well as the testing of shared systems is critical to channel buy-in and usage.
* Product awareness. When a manufacturer releases new features to a product or new products to solve business problems, the role of the partner or reseller in the process of "getting the word out" can’t be overlooked. Partners are the conduit for direct connection to the end customer and often have relationships that go well beyond the sale of a product; thus, specific programs that enable partners to share their experiences and information with other partners can be an excellent use of MDFs.
* Sales effectiveness. Few vendors/manufacturers provide training above basic product certification and nearly none provide a sufficient level of training that would enable the partners to be more effective at selling their products. With increased competition, it is critical the manufacturers focus on assisting their partners with robust training on sales effectiveness, including sales methodologies, executive selling skills, negotiation skills, forecasting and opportunity management. This not only helps the partner generate more revenue, but it provides the vendor manufacturer with a source of feedback on strategies for product innovation.
* Buying cycle support. Beyond the glossy brochures and data sheets purely focused on features and functionality, vendors/manufacturers must supply tools, collateral and other materials that support the length of the buying processes that their channel partners are trying to facilitate. Standardized nurturing tools such as newsletters and packaged email blasts allow a resource-strapped partner to keep in contact with prospects that are not yet ready to buy, maintaining a warm prospecting environment. Modularized web pages or packages that can easily be added to a partner’s website is another excellent way to use MDFs, as it enriches another communication channel for a partner while maintaining messaging standards the vendor/manufacturer wishes to protect.
By categorizing, modularizing and creating boundaries for the way that MDFs will be spent, you maintain the flexibility that is so attractive to partners with the MDF category in general, but capitalize on some of the control mechanisms more common in the co-op world. In the months and quarters to come, SiriusDecisions will share additional best practices in these four MDF program areas.
More and more, b-to-b organizations are looking for tactics and strategies to help maximize the effectiveness of their channel programs, to grab a greater portion of partner mindshare and wallet share, and to increase loyalty. Both co-op dollars and MDFs can be excellent ways to achieve all of these goals, provided they are both a part of your overall strategy, and are used in ways that maximize their advantages and minimize their historical and/or inherent disadvantages. In the end, the biggest question to answer is not how much you’re spending, but how you – and others – are spending it.
About the Author:
SiriusDecisions, a leading source for business-to-business sales and marketing best-practice research and data. SiriusDecisions Executive Advisory Services, Consulting Services, Benchmark Assessment Services, Learning and Events provide senior-level executives with the sales and marketing operational intelligence required to maximize top line growth and performance.
©Sirius Decisions, 2009. Reproduced with permission.