MDF and the Channel: What Happened to the Customer?

If you ask Dave Dyson, channel MDF reached its breaking point years ago.

Many agent partners and other members of the channel are calling for reform in how vendors and their technology solutions brokerage (TSB) partners utilize market development funds (MDF). Market development funds (MDF) at their essence connect suppliers and partners to one another for the purpose of reaching the end customer. However, partners have expressed worry about inefficient – and even recklessly wasteful – spending, poor return on investment and a lack of focus on the end customer.

This article is the first of two on how MDF functions in the technology sales channel, focusing on the commission-based agent referral partner model. Part one focuses on how vendors utilize MDF, while the second part examines how the modern TSB business model is shaping the way vendors and partners relate to one another.

MDF Defined

A manufacturer or service provider disburses MDF money to its channel partners with the expectation that the partners will sell its products and services and drive brand awareness for the vendor.

The type of partner receiving the MDF varies based on the vendor. The vendor may offer the funds directly to a customer-facing partner, whether it be an agent, value-added reseller or managed IT services provider. However, in the common agent channel model, money transacts from the supplier to the distribution partner, which connects the supplier to selling partners. For example, a vendor pays the TSB or disti to host an event, program or contest that draws customer-facing partners (in this case, agents and VARs) into contact with the vendor. The distribution partner provides the supplier with leads of partners that participate in the program. The results that follow for the most part amount to how the vendor utilizes those leads.

Telarus’ Amy Bailey

“We plan and execute the event. Then within two days, we send them a list of everybody they met at the event,” said Amy Bailey, senior vice president of marketing for Telarus. “What they do with that is highly dependent on how much [return on investment] they’re going to get.”

MDF does function in alternative models to those mentioned above, but this article specifically examines the traditional model in two-tier distribution, which goes through the TSB.

The ‘Trinket Crowd’

Dyson, who runs Chicago-based consultancy Eclipse Telecom, recalls a pre-pandemic time when five separate tech solutions brokerages hosted an event in Chicago in a span of less than two weeks. Two hosted an event within a mile of each other on the same day.

If you went to all of the events, you would have seen many repeat faces. For example, some vendors sponsored multiple events.

“I said to a channel chief at the time, ‘You’ve got to be sick of paying for all this. This is crazy,'” Dyson said.

Eclipse’s Dave Dyson

On the other hand, many subagents hopped from party to party. Dyson fondly refers to this group as the “trinket collecting crowd.” This group goes event-hopping, and they prioritize the free meal and merchandise more than any business strategy they’ll acquire from the gathering.

While a vendor may see these events as an opportunity to gain the mindshare of these attendees, Dyson warns that the trinket crowd doesn’t see it that way. Dyson said hosting these events isn’t actually creating partner loyalty.

“The agents are going from event to event to event, but they’re still putting their business where they always put it. They’re not necessarily making big vendor changes or even big distributor changes,” he said.

Moreover, partner loyalty does not necessarily translate to market development, according to Nancy Ridge.

Ridge Innovative’s Nancy Ridge

“Yeah, they became experts, because they saw the presentation three or four times while they were hanging out with their friends and eating lunch. But did they sell anything?” said Ridge, founder and president of Ridge Innovative and former executive vice president of Technology Source.

Nevertheless, this MDF motion has gained a strong foothold in the channel. Hilary Gadda, TPx Communications‘ director of national channel sales and development, reviews sponsorship proposals from partners, with the largest coming from TSBs. She said most of these projects won’t …