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.

What is Marketing Operations?

Denise Peck, Vice President of Marketing Operations at Cisco, was interviewed by Women in Consulting, a non profit organization in 2005. The topic of the interview is Marketing Operations. You can find the interview here. It's a really good substantive discussion of MO from the perspective of someone who lives it.

I guess the first question is, "what is marketing operations?" I think the best way to approach this question is to start from the perspective of a traditional manufacturing company. In a manufacturing company, operations is responsible for analysis of processes, automation, quality control, and understanding how different actions result in outcomes. Operations people tend to be engineers, statisticians, or operations research scientists.

In a marketing group, MO does basically the same things. In a nutshell, MO is responsible for:

1. ROI and causality analysis
2. Systems and automation
3. Data storage, retrieval, cleansing and reporting
4. Process and analysis and redesign
5. (Sometimes) budget allocation and financial reporting

The question that always comes up is where MO starts and the roles of more "traditional" marketers begin. For example, a campaign manager might have created a great process for launching and tracking email campaigns. Where does MO come in? In my opinion, good marketing operations people:

1. Gather and filter best practices from around the company
2. Codify those best practices and communicate them out as policy, preferrably codified inside tools
3. Measure adherance to marketing processes

The danger with a role like this is that it can be perceived as overly bureaucratic. The way to get around this is with a focus on results tracking. This is such a huge issue for marketers today that anyone who can come in and truly prove incrementality by vehicle is going to an MVP in the organization.

I'd estimate that today about half of F500 companies have designated marketing operations departments inside marketers, with the other half distributing these functions across other groups. However, the trend is going towards defined MO departments, particularly in B2B companies.

B2B Best Marketers 2006

BtoB announced their best marketers for 2006. A couple comments. First, it's dominated by high-tech. I guess this is no surprise, as tech is constantly innovating and it is, by its nature, very B2B dominated. Second, I again wonder about the methodology. How do you pick a "best marketer?" I guess it's a bit like best picture. You know it when you see it.

Here are some "best marketers" of note and some comments. All these little blurbs have interesting stories to tell about the marketing challenges these people are facing and the steps they're taking to overcome them. As far as I can tell they're pretty accurate, too.

#1 Mich Mathews, Microsoft. Microsoft has done a great job transforming its marketing organization to be focused on both outbound (e.g. programs) and inbound (providing a pathway from customers to engineering). This is a critical role for a B2B software / solutions company, and one that many companies have struggled with. Other areas of focus that Microsoft is executing well on: Digital Marketing and New Product Launches. Digital marketing is defined as "everything other than the offline stuff" and includes but is not limited to leveraging microsoft.com for marketing and taking advantage of all the traffic Microsoft generates in the blogosphere. New Product Launches are really huge for Microsoft as it struggles to retain its "growth stock" classification. Dynamics has been huge for the company this year--it has been building this brand up out of nothing to compete with the likes of Salesforce.com, Siebel and SAP.

Henri Richard, AMD. AMD has done a pretty darn good job battering Intel's image over the past year. It doesn't hurt that the product is performing, but the advertising strategy has no doubt improved performance. I've been particularly impressed with the ads focusing on power usage at the peak of the recent energy crisis. We'll see if they can keep it up. Can AMD come up with its own "Intel Inside" along with a catchy little jingle?

Peter Alexander, Cisco. Cisco is clearly focused on SMB for growth, and that's the focus of the blurb on B2B's site. I liked the description of "response bookings", a no-frills approach to calculating B2B ROMI. What was absent was any pithy discussion of to-partner and with-partner marketing, which Cisco is doing a really good job at. Let's face it, Cisco needs the channel to attack the Commercial (SMB) space. We'll see how Cisco fares in SMB over the next couple years.

Dan Henson, GE. GE is a conglomerate with a brand problem. How can one brand represent so many different businesses? The approach has been the ecomagination campaign, which ties all of GE's efforts together under the banner of environmentalism or at least green thinking. This brand message has been pretty positive, and hopefully GE won't fall into the BP trap of advertising green and then following up with high-profile environmental distasters. On the other side, GE has to sell its stuff, and when you think about it, they have really different marketing problems by business unit. Thus, GE needs really, really good product marketing managers.

So the lesson learned from all this? There are a lot of diverse problems being faced by marketers today, ranging from branding to segmentation to product marketing to channels marketing to analytics and measurement. It's definitely a growing and exciting field. There's a lot of innovation happening out there today.