MDF & Co -op What Is Best Practice? Leading... · MDF & Co -op What Is Best Practice? ... Contra Revenue vs. Expense Model Examples ... Integrating ALL key data, including POS,

MDF & Co-op What Is Best Practice?

www.channelmanagement.com [email protected]

7250 Redwood Blvd. Suite 214 Novato, CA 94945 Phone 415.427.5100

channel sales & marketing programs

CCI Provides Solutions to:

Manage

Measure Optimize



Incentive Solutions Throughout the Demand Chain Distributor Reseller Sales Reps Consumer

Co-op/MDF

Streamline management of joint marketing programs

Marketing Planner

Plan marketing programs, forecast and measure ROI SPIF & Rebates

Run short- and long-term incentive programs Sales Performance Rewards

Reward channel partners for attaining sales goals Trade In Rewards

Manage incentive programs requiring physical return of goods Opportunity Management

Deal Registration, Lead Management, Referral Rewards, and Special Pricing



CCI Clients

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Professional Services At Every Step

Program Design

Program Development

Program Evolution

Complete Incentive Solutions

Highly Configurable SaaS Application

ROI Metrics

Multi-currency/lingual

Fund allocation

New fund set up

Approval workflows

Partner and Activity –

add, deletes, changes

Email alerts

Program Management

Available follow-the-sun support

Claim administration

Payments

Program administration

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re·boot v. (reboot ) tr.v. re·boot·ed, re·boot·ing, re·boots

To restart.

To turn off and then on again. To discard all previous programs and start anew.

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Academic View

7

Co-op, MDF – What’s the Difference?

MARKETING EXPENSE CONTRA-REVENUE

Co-op programs are arrangements in which a manufacturer shares the cost of advertising with its resellers for featuring their brand of products. Both the manufacturer and the reseller get more advertising per dollar by sharing expenses. Co-op funds are accrued as a percentage of sales and offered to all eligible resellers.

Co-op Discretionary funds provided by manufacturers to their resellers that are offered to meet specific marketing objectives. MDF is generally negotiated by a company's sales force with their resellers to meet competitive offers, respond to other "vendor programs," or to target funds to a specific geographical area or product emphasis. Often require less complete proof of performance documentation than traditional co-op programs.

MDF



What’s Going On?

Most vendors are funding MDF programs but are not reaping the benefits because a majority of the funds go unused.

VARBusiness, 2004

• 98% of “Five Star” caliber vendors offer MDF to partners.

CMP Media Institute

• 25% of Vendor’s MDF program dollars go unclaimed annually.

AMR Research, 2001

• Over $750 Billion is budgeted annually on trade promotions in the U.S. alone.

$187 Billion left on the table!



Trends Impacting Programs

Shift to investing in channels

• Return to channels

• Compliance

• Measurement

• Benchmarks





– Return to channels

– Compliance

– Measurement

– Benchmarks

Maintain and extend channel partner relationships The product does not get to the end-

user without the channel Leverage trade promotions budgets to achieve corporate objectives

Understanding, targeting, and growing vertical markets

Co-marketing effectiveness A move from traditional print and direct-

mail methods to more effective co-marketing efforts with vendors

Channel influence on sales Direct interaction with end-users.






– Compliance

– Measurement

– Benchmarks

Address Federal Accounting Standards Board (FASB) Rules and Sarbanes-Oxley (SOX) compliance:

Marketing expenses vs. contra revenue

Verifiable internal controls

Identification and classification of ALL expenditures

Real time, proper accounting of all MDF/co-op payments



What Are the Issues?

How did the likes of Enron and WorldCom change our world in channels?

Enron and WorldCom misreported earnings to shareholders and engaged in purposeful and fraudulent activities to cover up their true financial conditions.

Ahold claimed $880M in allowances they hadn’t earned (mostly volume rebates).

Many companies reported most “trade allowances” as marketing expenses. Moving to contra-revenue can cause significant sales decreases.



Sarbanes-Oxley Act (SOX)

Key SOX Requirements:

• Sec 302 – establish and maintain disclosure controls, and evaluate those controls and procedures within 90 days of filing.

• Sec 404 – perform an annual assessment of the effectiveness of internal controls over financial reporting. Evaluate internal controls over financial reporting quarterly.

• Sec 409 – Disclose to public on a “rapid and current basis” information concerning material changes to financial condition or results of operations.

• Sec 906 – The period report containing financial information complies with the Exchange Act and fairly presents financial conditions and results of operations.

Overall Control Objectives

All reporting is accurate and free of material omission

All matters that should be considered for disclosure are communicated to corporate executives in a complete and timely fashion.

All transactions are captured, recorded, summarized and reported in accordance with GAAP and SEC rules.

Assets are compared to accounting records.



Expense vs. Contra-revenue

FASB Rule 01-9: Classification of Marketing Expenses (must meet all 4 tests):

1. The payment covers a service by the partner that offers a clear benefit to you;

2. The benefit is clearly separable from the sale of the product;

3. The benefit could be purchased by you from a source other than the partner;

4. You have obtained proof of performance to reasonably estimate true costs.

Marketing Expenses

• Advertising (print/web) • Broadcast (television/radio) • Catalogs • Direct mail/e-mail • eNewsletters • Seminars & Webinars • Telemarketing • Trade Shows

Contra-Revenue

• Certification • Training • Demo equipment • Sales incentives • Funded Headcount • Recruitment



Contra-revenue vs. Expense

Example Contra Revenue

Marketing Expense

Re-classify

1) Allowance granted: No POP req’d 2) Reasonable claim: POP req’d &

submitted 3) Reasonable claim: POP req’d but not

submitted Yes, from expense

4) Claim for $10K is reasonable 5) Claim for $10K is 2 times market value,

but is still approved $5K $5K Yes

Contra Revenue vs. Expense Model Examples






– Compliance

– Measurement

– Benchmarks

Quantifiable results

Evaluate channel performance (top performing partners)

Invest in marketing campaigns that yield quantifiable results and return-on-investment

Use of metrics

Know what you want to measure

Integrating ALL key data, including POS, forecasts, and MDF/co-op plans

Reporting on key metrics (utilization, participation, media, vertical markets and products)



Key Indicators

$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

MDF Balance Summary

Paid + Pending

Budget

Paid

Pending

Program Indicators

Total Funds USD $2,015,849.43

Total Expenditures USD $1,827,986.09

Outstanding USD $169,644.28

Utilization 90%

Participation Indicators

Total Active Accounts 591

Participation 83%

Conformance Indicators

Total Number of Claims 21336

Total Denied Claims 0% Spending by Activity

Web Advertising (3.73%) Training (1.81%) Sales Tools (1.81%) Print Advertising (3.05%) Fund-Head Position (9.59%) Event/Seminar (9.86%) Direct Mail (0.09%) Catalog Advertising (70.06%)



Return on Investment

Activity Type MDF Spend Total Audience Expected Return (ROI)

Expected Sales # of Leads

Catalog Advertising $201,792 22,000 396% $800,000 500

Direct Mail $250 157 600% $1,500 5

Email Blast $600 14,000 917% $5,500 70

Event/Seminar $45,970 195 27% $12,500 83

Funded Head Count $50,000 5,000 3600% $1,800,000 500

Lead Generation $13,744 1,000 1455% $200,000 20

Print Advertising $35,845 40,000 349% $125,000 125

Sales Tools $7,558 170 198% $15,000 100

Telemarketing $2,400 1,300 625% $15,000 40

Training $5,385 200 93% $5,000 3

Web Advertising $26,333 20,502 30% $8,000 8

Totals for Q1 $389,877 $104,524 766% $2,987,500 1,454



Media Usage

0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00% 18.00% 20.00%

Advertising (print/web)

Collateral

Communications (Dir. Mail, Email)

Reseller Event/Show

Reseller Pass Thru

Reseller Promotions

Reseller Seminar/Training

Direct Mail

Disti Event/Show

Disti Program Fees

Disti Sales Promotions

Disti Seminar/Training

Disti Staffing

Miscellaneous

POP / Specialty Items

Distributor Media Usage Profile

Reseller Focus

Top Usage: Fund Headcount = 20% Dir. Mail/E-mail = 13% Print/Web Adv. = 13% Disti Sales Promos = 13% Disti Events/Shows = 8%



Media Usage

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0%

Customer Events Trade Show/Conferences

Sales Meetings Telemarketing/Lead Generation

Demo Equipment Conference/Show Attendance

Magazine/Trade or Journal Direct Mail Campaigns

Training Promotional Items

Seminars Banners/Billboards/Poster

Incentive Programs Dedicated Head Count

Magazine Print Ads

Reseller Media Usage Profile (top 15 categories)

Top 5 Usage: Customer Events = 18% Trade Show/Conf. = 9.5% Sales Meeting = 7.6% Telemarketing = 6.6% Demo Equip. = 6.3% 48.0%






– Compliance

– Measurement

– Benchmarks

Program indicators

Funds accrued

Funds expired

Outstanding liability

Utilization rates

1st year: 40%

2nd year: 60%

3+ years: 80%

Accrual rates

Range from 1% to 6% 66% of programs are between 2% and 3%

50/50

Reimbursement

100%



Operational Benchmarks

Usage: Period 1 Period 2 Partners Using Site 1,541 1,976 Total Hits to Site 15,356 29,505 Prior Approvals: Total Pre-approvals Submitted 4,038 7,309 Total Pre-approvals Accepted 2.625 (65%) 5,995 (82%) Total Denied 847 (21%) 803 (11%) Total on Hold Currently 422 (6%) 7 (< 1%) Turnaround on Ads 24 to 48 hrs 12 to 24 hrs Claims: Total Claims Submitted 2,142 4,772 Total Calls to Channel Management 10 to 30 per day 10 to 20 Response Time on Calls 24 hrs max 12 to 14 hrs Total e-mails to Channel Management 10 to 20 per day 10 to 15 Response Time on e-mails 24 hrs max 24 hrs max



What the Channel Tells Us

“MDF is critical to our business. It is the sole means of getting monetary resources for the marketing initiatives at our company.”

Best uses:

Off set marketing costs

Training

Funded headcount

Direct mail / eBlasts

Seminars

Demo equipment

Reseller promotions

Customer training opportunities

Exhibit assistance

Collateral material

Critical (31%)

Helpful (19%)

Important (50%)



What the Channel Tells Us

Vendors’ biggest mistakes: • Difficult, complicated, unclear or overly restrictive guidelines.

• Too much control over how the funds are used.

• Failure to effectively distribute/communication the program terms and conditions.

• Cumbersome, lengthy claims process and procedures.

• Poor or inadequate follow up on requests.

• Lack of access to available funds, historical data and reports.

• Failure to target the “right” customer with the funds.



What We Should Do About It

Key success factors #1 Flexibility. One size does not fit all.

• Clear, concise accessible guidelines (kept it simple and sales friendly).

• Provide online access to available funds and historical usage sales data.

• Provide more input from the channel rep during fund usage decisions and marketing material creation.

• Timely follow up and communications on requests for MDF.

• Remove the administrative burden.

• Share vendor’s corporate initiatives and how this will help.

• Make the program and other sales support tools “functionally” available.



Best Practices

Clear, concise accessible guidelines (keep it simple and sales friendly).

• Program Guide

• Quick Reference Chart & FAQs

• Documentation Requirements

• Training

• Contact Information

Guidelines



Program Guidelines

Most plans have similar characteristics which include:

• Products covered

• Timing limitations

• Level of reimbursement

• Media allowed

• Prior approval and claim requirements

• Method of reimbursement

• Proof-of-performance requirements

• Where to send claims



Reference Charts and FAQs



Training Video

Online Training Sessions

Regional Sales Meeting Partner Summits



Best Practice

Access Provide online access to available funds and historical usage sales data.

Account Summary

Claim Status Media Usage



Best Practice

Communications Provide more input from the channel reps and provide timely follow up and communications.

Marketing Plans

Marketing & Sales Activities

Pre- Approval

Pre- Approval

Pre- Approval

Claim Claim Claim

Account manager initiates the quarterly marketing plan: • Strategic initiative • Product emphasis • Expected results • Time period • Total estimated MDF Partner enter activities to support the quarterly marketing plan: • Activity: Catalogue • Activity Name: Annual Catalogue • Start/End Date: 06/01/04 -08/31/04 • Comments: total cost split over 4 product groups • Total Estimated Cost: $2,208.27 • Amount Requested: $2,208.27 • Product: All Products





Capture Data Points



Best Practice

Sales Tools Make the program and other sales support tools “functionally” available.

Leverage corporate materials and collateral for co-branding by your channel • Product Sales Literature • Case Stories • Seminars “in-a-box” • Direct Mailers • HTML e-mail templates



Co-Branding

Your look and feel and

branding

Select product imagery and

associated text

Allow the partner to add their own

personal story

Partner designation,

company logo and contact information



Key Take-Aways

Compliance • MDF and co-op are inherently financial in nature and

must be compliant. • Know what accounting model your company follows. • Contra-revenue vs. marketing expense. Program measurement • Clearly define what you need to measure. • Capture and report on the data. • Set up simple ways to gather and analyze information. • Use the data to determine wise investments in

marketing campaigns that yield quantifiable results.



Key Take-Aways

Listen to your channel partners

• Be flexible.

• Keep the program simple and friendly.

• Make the program is functionally available.

• Share knowledge about what works.

• Provide timely communications and follow up.

• Help your partner understand your corporate initiates and how this will help them.

• Eliminate manual and paper processes.



Key Take-Aways

Communicate

• Communication must be consistent and must take place regularly.

• Communication reinforces buy-in and trust.

• Communication fosters an environment that allows for the free exchange of feedback, information and ideas.



Questions?

CCI: Channel Marketing Solutions channelmanagement.com [email protected] 415.427.5100

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Documents

MDF & Co -op What Is Best Practice? Leading... · MDF & Co -op What Is Best Practice? ... Contra Revenue vs. Expense Model Examples ... Integrating ALL key data, including POS,