Channel Rewards Programs Tripwires

Airlines have long known that rewards programs can be a powerful incentive for loyalty and even for increased overall flying volume among certain segments. Similarly, hardware and software manufacturers who rely on the channel understand that to play, you've got to pay. And, just like in the airline industry, there's an ongoing arms race between the big manufacturers to woo VARs to their products.

CRN (a VAR-focused news site) posted this article recently about HP's AttachPlus program that was supposedly designed to get VARs to sell more HP stuff in deals to customers. This program was the result of CEO Mark Hurd's promise to "double down" on VARs that were loyal to HP moving forward. The problem was that the folks designing the program botched a pretty big piece of it. Instead of basing payouts on (total revenue) * (attach rate) or something simple, they tied payouts to previous period performance. In other words, the better you did last year as an HP VAR, the harder it is to get paid in this period. It sounds good on paper--we're rewarding growth and culling VARs who might not be the stars of the future. Unfortunately, this has backfired and VARs are revolting (see article).

The lesson is simple--VARs are smart, so don't try to overthink these programs. Another important point is that VARs don't want programs that reward exclusivity. They think (and probably rightly so) that customers want vendors who carry multiple lines of products so they can make an informed choice. From the same article:

"...solution providers seem reluctant to participate in programs designed to bind them too closely to a single vendor. CXtec, a $114 million solution provider in Syracuse, N.Y., has resisted pressure to carry a single vendor's networking and VOIP technologies. While it does the most business with San Jose, Calif.-based Cisco, CXtec also has strong relationships with 3Com, HP's ProCurve division and Nortel Networks.

Cisco would really love us to be all Cisco, but at the end of the day, we really want to make sure we understand what's best for our customers," said Frank Kobuszewski, vice president of the technology solutions group at CXtec..."

However, there are still a lot of interesting things manufacturers can do to increase the effectiveness of their rewards programs without resorting to financial shenanigans. The overarching theme is that vendors need to put programs in place that benefit VARs and don't hamstring them. Here are some best practices I've noticed:

1. Reward VAR Principals--but also reward Account Reps and Engineers. Principals make the big decisions, but it's the AEs and SEs that are actually out in the field with customers. This is delicate ice to tread, but if you can convince Principals that it'll make their Reps sell better, they'll be all for it.
2. Use your loyalty program to drive channel intelligence (data). Rewards programs are a tremendous avenue for gathering data to enrich the data warehouse. By using these programs as place for aggregating hard-to-get VAR data, you'll be able to make better strategic targeting decisions in the future.
3. Quid pro quo works--just don't ask for it without giving it up. This seemingly was the HP problem with AttachPlus. Quid pro quo means you give up something of equal value to what you receive. In many cases, you can ask for data, marketing programs, or even dedicated engineers--but asking for exclusivity or YOY revenue growth probably goes too far.
4. It's not just financial / material rewards. Some of the Principals I've talked to really want training credits, demo machines and certification more than big screen TVs. And this benefits manufacturers, too--better trained VARs are more likely to grow faster and be more loyal than those winging it. Tying rewards programs to training and certification is a win-win for both sides of the partnership.
5. Channel conflict sucks. From the CRN article: "Microsoft doesn't have a big services organization so they are willing to walk arm and arm with us into SMB markets," he said. "If one major vendor wants to support us and another wants to support us on the hardware and compete with us on services, eventually that's going to be a problem for IBM. Sooner or later some partners are going to say, 'I don't need this,' says Jim Simpson, president of MSI Systems Integrators, Omaha Nebraska." This gets back to complexity--make it simple and don't get in the way of the partner.