By Tracy Delphia, Senior Marketing Analyst and Vaughn Aust, VP, Client Solutions, hawkeye
Like most ecosystems, the channel is continuing its evolution to adapt to a changing environment. The Great Recession, which started around 2008, punctuated channel change and quickly drove adoption of Software-as-a-Service and created quite a cloudy outlook for the channel. We are now four years into this round of evolution; the industry is pausing for breath and considering the longer-term impact of the adoption of a cloud-computing model. The realization that both vendors and partners are modifying their business models also is driving change within core program areas that support the indirect sales route-to-market.
The Importance of Incentives in the Channel
One essential area that is undergoing change is incentives. Incentive programs remain top-of-mind for manufacturers and their partners because in the channel, the members are not employed by the vendor company, and are not going to share the same enthusiasm about the business unless given an incentive to do so. In addition, incentives drive incremental channel revenue and profit, encourage new solution adoption with partners, establish a competitive differentiation for your channel program, and increase partner loyalty. In short, incentives programs strengthen vendor/OEM relationships with partners.
Whether a vendor is selling traditional software or hardware — or is expanding their solution set with more services offerings — incentives remain key to channel success. Traditional transaction-based revenue models are giving way to recurring revenue models: vendors know this and partners know this. In a Darwinian channel, those that adapt, survive. That means we are seeing more partners with multiple revenue streams — both transaction-based and subscription-based — as they begin to morph their business model.
How should incentives programs adapt to the changing landscape?
First, incentives programs need to reward partners on the true value of a sale. Incentives programs are designed to drive positive partner behavior, strengthen loyalty and ultimately, increase sales. The recurring revenue model doesn’t change these goals, however, the methods used to influence behavior need to be adapted. Rewarding partners throughout the entire partner lifecycle is an effective way to capture their attention, maintain engagement, as well as promote and drive revenue.
Partners should be incentivized for subscription-based (cloud computing) sales based upon lifetime value of the deal rather than unit price; this is the true value of the deal. All vendors need to do is replace the word “price” with monthly, quarterly or annual recurring revenue in their sales compensation model. Then they have the ability to accurately calculate rewards that are proportional to partners’ sales.
Second, Vendors need to integrate individual and company rewards into a single points-based system, and design the incentive scheme around partners, individuals and teams; ensuring that all stakeholders derive tangible benefits through earning and redemption opportunities that align to the partner’s business model, and generate an incremental shift in the desired partner behavior. Because the end goals for both individual and company level incentives are the same — loyalty and a surge on incremental sales — an integrated approach is cost-effective for vendors. In addition to this very obvious benefit, a unified approach to incentives builds deeper relationships with target accounts (partners), a necessity for effective complex services and solution selling. Moreover, an integrated approach also enables vendors to align their global strategy across multiple regions while still allowing enough flexibility for local implementation.
Channel organizations are under increasing pressure in the new economy to demonstrate ROI effectiveness. However, it is admittedly challenging to point to the value of cash incentives when vendors are unable to track spend once they pay the incentive to the partner. Clearly, “cash is king” for many partners, but cash incentives paid out to partners often flow into operational costs and are not necessarily spent in ways to benefit the vendor paying out the incentive. There are non-cash incentives that partner organizations can redeem points for that have strong value, such as pre-packaged marketing plays, demo units, training and certification, and marketing support. These “non-cash incentives” allow vendors to provide incentives and rewards for promoting its products and solutions — a win-win situation for manufacturer and partner. And because metrics are available for closed-loop marketing activities, the spend of point-based, company-level incentives enables ongoing ROI measurement and insight that is completely lost when vendors pay out cash rewards.
Incentives for the Next-Generation Channel
Clearly, incentives for a channel populated by hybrid partners — those who pursue multiple revenue streams — and vendors who also are expanding their sources of revenue, will remain an integral component of channel programs. There is no need to start over or redesign incentive programs every time the channel landscape evolves. A focus on the true value of a sale means that as the channel changes, only variables used to calculate the value of sales need to be modified to keep an incentives program timely and relevant. An integrated, points-based approach for both company- and individual-level incentives makes it easy for global programs to adapt to local conditions and swap out currently valued rewards “purchased” by partners with a single incentives currency.
hawkeye Channel delivers full-service global and localized channel solutions to leading technology companies. The company provides turnkey software solutions, communications and services to channel organizations worldwide, as well as thought leadership and educational content to aid in enhancing, accelerating and engaging channel partners.
A PhD with more than a decade of experience in channel program development and support, Delphia is responsible for channel research projects at hawkeye. Delphia is regularly engaged to support strategy development and execution for some of hawkeye’s most high-profile clients, including Microsoft, Hewlett-Packard, Seagate, and SAP.
Aust has been with hawkeye since the company’s inception, when it was known as Cohesion. He thrives in taking on challenging problems and devising innovative solutions that may previously have been overlooked.