An Introduction to Channel Incentive Programs

BrandMuscle | May 24, 2021

What Are Channel Incentive Programs?

Channel incentive programs are a behavioral modification tool designed to achieve specific goals by rewarding partners for specific efforts. Programs can motivate channel partners to highlight new products, liquidate old inventory, identify new market opportunities to drive leads, and of course, increase sales.

Depending on the business and structure, channel incentive programs go by different names: a loyalty program, a reseller program, agent reward program, dealer reward program, distributor incentive programs.

The variety of channel incentive types makes things seem complicated, but the gist is simple: When businesses provide channel partners a direct reward for selling their product, data shows that partners will sell more. It’s that simple. Rewards encourage action and loyalty.

Whether the partner is a wholesaler in a warehouse or a sales rep in a brick-and-mortar store, partners influence end customers’ purchasing decisions in numerous ways. When an HVAC contractor recommends one unit over another, when a salesman downplays a particular brand, when someone promotes your products over the competitors’ products even when certain models are basically equal and helps customers narrow down their options, then a channel incentive program probably influenced their recommendation. These are called indirect sales.

Why Use a Channel Incentive Program?

With nearly 75% of world trade moving through a sales channel, local distribution points are critically important for getting your products and services to customers. Channel incentive programs offer one proven way for businesses to nurture productive relationships with their channel partners and to stimulate sales.

As a third-party entity that markets and sells a business’ products or services through a co-branding relationship, channel partners are part of the businesses’ indirect sales force. That means that partners not only sell on their behalf, they influence consumers’ purchasing decisions as marketers, all while remaining an independent organization. For example, the mom and pop store Danny’s Hardware sells name-brand lawnmowers by Honda and Toro. That makes them brand ambassadors for companies they don’t work for but whose well-being everyone depends on. This partnership is crucial for distributed organizations, because partners’ marketing activities — how they present and highlight the brand — greatly influences consumer behavior. For companies that depend on intermediaries to bring their products to market, investments in the channel yield higher ROIs than investments in direct sales.

Different Incentives for Different Objectives

Incentive programs align partner behavior with companies’ business goals in numerous ways. The most obvious goal is to increase overall sales volume. But many times the goal is more particular, such as driving sales for high-margin items. If old inventory is piling up, vendors can help partners reduce old stock by shifting their focus. When a new product hits the market, a program can try to increase adoption. For a value-added reseller, or VAR, the program may incentivize product bundling and promote cross-sales that utilize a manufacturer’s product. Other programs promote referrals to increase market penetration.

Different incentive structures support specific goals. Some are long-term, others short-term.

Sales Incentives

The most common incentives are based on sales. Partners who reach a certain margin, sales volume, or exceed goals set for incremental growth receive gift cards, points-based rewards for travel or merchandise, and single-use or reloadable debit cards.

Channel Rebates

Designed to generate demand, partners receive these rebates as debit card rewards based on the frequency or size of orders, usually for a particular product.

Activity-Based Incentives

Brands can encourage partners to influence business beyond sales and marketing by doing demos, driving revenue in small markets, and managing client relationships.

Channel SPIFFs

Sales Performance Index Funding Formula, or SPIFFS, reward sellers directly based on a percentage of sales. Deployed as short-term promotions to target specific business initiatives, SPIFFS are frequently given on reloadable debit cards.

VAR incentives

These programs encourage VARs, or value-added resellers, to add services or features to a business’ products as part of their resale activities, helping increase market penetration. For example, a jeweler brand may provide incentives for upselling engagement rings to include an engraved message.

Warranty Registrations and Bundling

Getting customers to buy a warranty increases the value of a sale for manufacturers, wholesalers, and distributors. Warranty registrations is a form of product and service bundling, and it also provides companies with consumer data they can use to modify their sales and marketing activities, so partners receive incentives to encourage end users to bundle.

Channel Marketing Incentives

Co-op and market development funds are an effective way to encourage partners to market your brand throughout the supply chain because it reduces their out-of-pocket advertising expenses.

Referral Incentives

Also called deal registration incentives, referral incentives reward partners for identifying market opportunities and for registering end-users that become qualified opportunities. Referral incentives include debit cards, gift cards, points-based rewards and travel promotions, as well as a percentage of a sale that gets closed.

Enablement and Training Incentives

Representing a brand for a parent company requires an intimate, working knowledge of its products and services. Because channel partners don’t work for the businesses they sell for, the responsibility to train them falls on the parent companies. Enablement and training programs reward partners for attending tradeshows, earning certifications, taking quizzes, and engaging in other learning initiatives. Partners tend to sell the products they know best. This is especially important when partners sell multiple brands.

Staffing incentives are a related type that embeds a full-time employee in a partner organization in order to train partners and to promote product in the partners’ business.

Loyalty Incentives and Partner Retention

In addition to sales volumes, companies also need to focus on the long-term goal of maintaining the relationships they’ve nurtured. Once your best partners have achieved maximum sales, incentive programs can shift from rewarding growth to retaining those high-performing partners. If it’s true that you need to spend money to make money, then you can apply that here, because these are the top brand representatives you can’t afford to lose. To keep them, reward their loyalty. Otherwise they may migrate to the competition.

Channel Incentive Best Practices

Despite their track record of improving channel performance, factors such as execution and poor design can cause incentive programs to underperform. Your program is only as effective as you make it. These best practices can drive participation and ROI:

  • Internal support: First, get executives or senior management excited about the incentive program to get them behind it. Any successful program requires a champion whose faith in its abilities will make sure the company spends the money and staff hours necessary for the program to work.
  • A simple platform: Next, get an accessible, user-friendly platform with a manageable interface. To get the greatest ROI, you have to make incentive programs easy for partners. No one will want to use a program that’s confusing and difficult to navigate.
  • Set strategic goals and measure results: Once you define your objectives, select the best incentives for achieving them. Clearly communicate those objectives so that everyone involved — from channel partners to customers — is united in their efforts and can play a role in your mutual success. Let data drive your goals, then analyze your program’s data to measure performance and modify it.
  • Increase enrollment: An incentive program’s strength is only as good as its enrollment. You need active partners doing the work. Evaluate your program to see if low sales may stem from low enrollment, and figure out ways to sign on new partners and increase engagement. Partners are out there. Instead of trying to extract more results from existing partners, spend money on recruitment.
  • Define your audience: Targeting is essential. Instead of casting too wide a net, determine which partners will benefit from influencing and structure your program to cater to those partners’ needs. Also identify which partners hold the most potential for achieving your goals and which have a proven track record for high performance. Focus on them.
  • Simplify the rules: When your program rules are clear, partners know what activities earn rewards. Keep your rules simple Confusing requests and unnecessary complications reduces motivation and discourages participation. Focus on a few products or services during a particular sales period before shifting your focus to the next set of products.
  • Loop in your sales team: As important as having the support of higher-ups, your sales team is crucial to your channel incentive program’s success. Don’t only involve them, incentivize their participation. Reward them for enrolling channel partners in the program, and facilitate that activity by providing easy-to-use material that explains the value of participating.

Looking to Scale and Optimize a Channel Incentive Program for Your Brand?

Contact BrandMuscle or download our State of Local Marketing Report to learn more about channel partner behavior.

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