Because co-op and market development funds are and will continue to be the foundation upon which all indirect channel-partner marketing is built, their optimization must be prioritized over the optimization of the individual marketing programs themselves.

Channel Partners

February 5, 2014

6 Min Read
Mitigate Co-Op and Market Development Fund Problems Step-by-Step

By Gary Ritkes

Supporting local distribution partners with promotional allowances (co-op and market development funds) is a stalwart marketing tactic used by brands. Local partners use these funds to purchase a range of local marketing services that could include direct mail, local PPC, radio and local search optimization just to name a few. The funding structures that enable local partners to buy the marketing that localizes brand image and pushes select products are the absolute bedrock of partner marketing. Despite the fundamental impact promotional allowances have on the profitability of distributed networks, there is a constant refrain from analysts and channel partners that the poor structuring of promotional allowances causes low partner participation. That poor participation renders the entire framework of brand facilitated local marketing through partners impotent, thus gravely affecting the local marketing brands are desperately trying to master.   

In this article we will attempt to propose step-by-step strategies to mitigate the problematic situation described above. We will:

  • Go over the definitions of market development funds (MDF), co-op funds and distributed organization, just so we are on the same page

  • List the reasons partners dont use free money to promote your brand/products

  • Explain how to mitigate the three main problems surrounding co-op and marketing development funds  

3 Critical Definitions to Get Us On the Same Page

Distributed Organization: A brand or manufacturer that sells its products or services indirectly through a channel of resellers such as retailers, franchisees, VARs, or field agents, etc.    

Market Development Funds (MDF): Funds that are directed to partners ahead of sales, which are usually more short-term in the marketing goals they aim to achieve. MDF are discretionary as they are awarded based on predicted or expected behavior.

Co-Op Funds: Funds that accrue usually based on a percentage of partner sales or another performance based partner metric. Co-op funds essentially reward partners that are already performing with constant-stable funding directed at more long-term marketing goals and maintaining partner loyalty.

Reasons Partners Are Not Taking Your Money and How to Mitigate the Problem

There are essentially three main problems that cause co-op or marketing development funds to go underutilized: weak internal promotion of the program to partners, cumbersome disbursement and reimbursement processes, and simply they dont know how to spend it. 

So how do you mitigate those encumbrances step-by-step, and can I illustrate with examples? Sure.

How to Mitigate Weak Internal Promotion

Every network is different (some are open and some are close, while some more apathetic than others), but they all respond to robust communication so lets go through the steps:

  1. Evangelize the channel reps by clearly showing them (with video, testimonials, stats, in-person / telephone meetings or whatever it takes) the value proposition of the co-op or market development fund so they can evangelize it for you throughout the network.

  2. Directly contact the local partners definitely through email and possibly through phone calls or direct mail. (Yes, multi-touch point communications arent just for customers.) Make sure the promotion towards the partners is compelling, again using any means necessary to demonstrate the value proposition.

  3. Make sure communication to channel reps and partners is timely; promote funds to local partners in time to opt-in to the great preconfigured marketing programs that run in accordance with partners peak sales seasons and or create dialogue with customers in a relevant-timey manner.

Example: You decide your local channel partners need their Web pages optimized for local search, which could be important because local search is a near-daily ritual 4 in 10 individuals use local search once a day, while two-thirds use local search at least 3-4 times per week,” according to Street Fight Insights. You want local partners to opt-in to the local search program you have either developed in-house or entrusted to a partner, so an initial email blast is sent out to partners with a pdf attached explaining all the benefits of the program and how co-op or MDF can be applied. Five days later an agent makes a follow-up call to all partners that have not already adopted by using a call script that prioritizes the value proposition talking points of the program. Four days after that, another email is sent with different messaging provoking further urgency. Several weeks later when you have good analytic results of how the campaign is positively impacting partner sales you send an email to those that did not opt-in, describing to them the sales-generating results their peers are experiencing.            

How to Mitigate Cumbersome Disbursement and Reimbursement Processes

In general, you will need to drop manual processes, divest of legacy technologies, and reject the tendency to manage promotional allowance with fragmented technologies.

  1. Use a co-op funds management tool to assign, distribute, and reconcile funds that ties into the same marketing resource management platform where the preconfigured marketing programs are offered.

  2. Make sure the tool has electronic funds distribution of disbursements and reimbursements, approvals functionality, and historical account statements to track fund usage behavior over time.

  3. Revise what your internal processes and the tool can do to help partners with compliance for tax and legal regulations, and in providing an audit trail.

Example: You are providing market development funds in advance of a new product launch to drive sales at partner locations. Instead of asking partners to spend their own money you disburse the funds ahead of time directly into their accounts, but not before you have segmented your network to assign different amounts to distinct classes of partners. Partners have a coherent, unified visual of their past fund usage for reporting and compliance with external agencies. 

How to Mitigate the Problem of Partners That Dont Know Where to Spend Funds    

Partners are not marketers and are so focused on operations they dont know where to spend the available funds. When they do make decisions on digital and traditional ad spend those decisions can be knee-jerk, which leads to ill-spent funds.

  1. Offer preconfigured marketing programs over the MRM platform that is tied to the co-op funds management tool. Subsets of marketing programs should be packaged into marketing plays that can be run by partners within certain time parameters.

  2. Educate partners on how to evaluate their local context and choose the correct marketing programs offered to them.

  3. Provide easy access to a local marketing coordinator or marketing concierge service that is essentially a dedicated customer service representative to help partners design their local marketing mix.

Example: Funds are disbursed and local partners have been notified of the programs available to them. Now they can go to the marketing resource management platform and browse the suggested marketing plays that have an education component, which helps the partner understand the marketing program(s) in the context of their local market. If the partner is at all confused about where to spend their co-op or marketing development funds they can call the dedicated local marketing coordinator.      

Co-op and market development funds are and will continue to be the foundation upon which all indirect channel partner marketing is built. That is why their optimization must be prioritized over the optimization of the individual marketing programs themselves. You have seen from the explanation above that its possible with good internal communication, good technology and robust local marketing strategy.          

Gary Ritkes oversees all sales and account management at SproutLoud. He is an industry leader and innovator with more than 20 years of experience in graphic communications and marketing strategy. Ritkes has been involved with SproutLoud since the inception of the company. He was previously vice president of marketing for Rex Three Inc., SproutLouds first and largest vendor.

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