MANAGING MDF RISK AND RETURN

Optimizing Market Development Fund Program Design - Channel Mechanics

Sue Heintz, Channel Management Professional   |  

calednar Channel Mechanics12th Dec 2019

Optimizing Market Development Fund Program Design

Views: 395

Q:  What does an Olympic gold medalist and a world-class Market Development Fund Program Design have in common?

A:  They both make it look easy!!

But we know that, in both cases, a huge amount of work goes into preparation. We never see the Olympian’s hours of practice, or the detailed logistics of competition. And most people never see the layers of complexity that must be considered and managed in MDF Program design.  All we expect to experience is a stellar performance!

 

In the case of MDF program design, that performance means clear, relevant information, shared seamlessly between a vendor and their individual partners – visible to both, in real-time. That’s the goal. However designing this experience takes a lot of up-front work. Consequently, that’s what we’re going to look at in this blog: Optimizing MDF Program Design.

 

Essentially, Market Development Fund Program Design encompasses four major components or decision streams:

 

MDF Program Design

Each decision stream complements the others to produce an MDF Program Designed so that partners can easily assimilate into their business, and vendors can measure, analyze and learn from in order to maximize ROI.

 

1. Market Development Fund Program Design: Strategy

Before you begin your MDF Program Design, there are three basic questions to consider:

1. Are you important enough to your partners to warrant an MDF Program?

Every incentive program must answer this question. “If you are not at least 5% of your partners’ business, on average, you should not expect enthusiastic participation in this kind of program.” If this is your current situation, consider using your funds to create “pull” by providing leads or taking partners on joint sales calls where they earn new revenue. In some instances, a competitive displacement promotion can also be very effective.

 

2. Will all your partners value and use MDF in the same way?

Today, most vendors have a wide variety of partner business models in their ecosystem. Therefore you need to consider what kind of vendor investments will have the greatest return for each model you are considering.

Traditional Resellers, for example, place a high value on vendor marketing support and readily respond to an MDF program that makes their advertising and promotion funds go further.

Technical Partners who develop and sell solutions will have a different perspective. While these partners value marketing, they place a higher value on technical and development support.  Maybe their MDF program needs to focus on a different set of funded activities.

– Finally, there’s Strategic Partners who may be capable of significant levels of innovation with their vendors, but lack the focus and funding. For this select few, you may want to create a separate MDF carve-out – Innovation Development Funds.

The important point is to consider your ecosystem. What does it need to perform most efficiently UP-FRONT – before you create your MDF program policies.

 

3. What percent of the total channel budget should be assigned to MDF?

Again, the “right” answer is a function of the business models in your partner ecosystem and what you need to execute your business strategy. One of my clients – a large global vendor new to channels – initially invested heavily in MDF for their partners, exceeding the competition on most dimensions.  But they weren’t getting much traction. Their business strategy was “to be integrated” and, while they had the “right” partners signed up, they only had two development centers in the world!  We therefore re-balanced the investment portfolio to emphasize the building and expert staffing of worldwide development centers, with great success.  And now that partners have what they need to develop solutions with their new vendor, they can better appreciate and participate in MDF programs.

 

2. Market Development Fund Program Design: Policy

The policy component of an MDF program design integrates your strategy, your partners’ various business profiles, your budget and your competitive landscape into the following key decisions you will need to make:

1. Will the program(s) be available to all partners? If so, what percent participation are you projecting?

2. Do we want to customize by region or partner tier?

3. What initiatives/activities are important and warrant investment? Does this include activities classified as “contra revenue” as well as those classified as “expense?” Are there any corporate concerns we need to address in this MDF Program design?

4. How much “creative control” do we want to exert over partner initiatives? The answer here is a function of your knowledge of your partners and your comfort with their marketing experience and expertise. Some vendors have simple guidelines for percent of ad dedicated to the vendor or product, how logo is to be used, etc. Others will want more formal approval of a partners’ work before signing off.

5. Will we fund partner initiatives at 100% – or lower? Conventional wisdom is that both partner and vendor need to have some “skin in the game for the program to be successful.” In tech, 50/50 is the most common funding policy.

6. What level of documentation is required from partners? 

In the submission phase – Will you want demographic profiles of a proposed event? The readership and reach of a publication? Or do you have confidence that your partners have the marketing expertise necessary to make wise investment decisions here?

In the payout phase – What “proofs of performance” will you require from partners before releasing funds? You will definitely want an expected ROI up-front so you can measure against actual. For significant investments, you can also create key milestones for phased funds release.

7. Have we covered the common contingencies – “what to do if...” The partner’s proposed initiative doesn’t meet your guidelines? The partner wants to escalate? Or the partner doesn’t achieve the expected ROI?

8. Who will need to sign off on funding requests? Do we want do differentiate this by funding level?

9. Will payout follow an accrual or business case model? 

In an “accrual model”, MDF funds automatically accumulate as a percent of each partner’s sales. As such, it’s up to the vendor and partner to work together to spend this money. This method lets all partners participate and know they are valued. However, small partners rarely accrue enough money to do anything significant – a real negative if you depend on these partners for a high revenue percentage. Also, partner participation rates tend to be below 50% with funds rarely being spent. A Channel Automation Platform helps with this by improving participation rates considerably.

In a “business case model”, funds are budgeted up-front but only committed to designated partners once a business case is approved. For instance, you can more readily (and aggressively) invest in partners who are able and willing to invest in you. In addition, it allows small partners – if invited – to participate at higher levels. Payout is dependent on performance, measured in ROI – so vendors have a manageable vehicle for offsetting risk. However some partners will not be able or willing to commit to business case development. This type of model also requires much more oversight and tracking.

In your Market Development Program Design, you may want to have an accrual based version AND a business case version. Or, if just starting out, you can begin with an accrual program and build from there if and when necessary.

10. What is our target turnaround time on partner requests? Your turnaround time on requests can be a key differentiator for you – especially if your program is automated and your competitors are mired in spreadsheets and emails. If you have a great MDF platform, include the turnaround time in your policy messaging. Above all, it lets partners know you are responsive and state-of-the-art.

 

3. Market Development Fund Program Design: Process

The process for MDF implementation should incorporate and mirror the policies you’ve already developed.

Market Development Fund Program Design

 

4. Market Development Fund Program Design: Platform

Lastly, the final component of MDF Program design, the platform, is critical. This is because it allows partners and vendors to have an ongoing dialog about:

– What’s Expected

– What is Available

– What’s Happening

– What is Working

– What’s Not Working

When using a world-class channel automation platform, your MDF program should add another, experiential dimension that results in improved partner mind share and higher participation in the program – whilst at the same time, lowering administration costs. Channel Mechanics has developed a checklist of these desired experiences that is relevant for anyone building or refining their MDF program. In their words, an MDF program should be:

MDF Design

 

 

 

 

Market Development Fund Design

 

 

 

 

GOOD LUCK DESIGNING YOUR PROGRAM!!

 

Further Reading on MDF:

  1. 5 MDF Best Practices
  2. The Benefits of Implementing an MDF Program
  3. 9 MDF Program Management Challenges
  4. How to Get the Most from Market Development Funds (MDF)
  5. MDF…Does It Need To Be This Complicated?
  6. Deliver and Track Market Development Funds (MDF) in Real Time

 

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