Channel Incentives Definition

Channel incentives, distributor incentives or dealer incentives relate to the paying of a rebate, spiff or loyalty points to a channel partner in return for that channel partner fulfilling the corporate sponsors stated objectives.

Channel incentives are different from advertising because the payout for channel incentives is on a variable basis. The channel incentive is only paid out and the corporate sponsor only pays for the channel incentive if the goals are met.

Use of channel incentives in a sentence:

XYZ Corporation’s decision to distribute its ABC product through an independent sales channel was bolstered by the use of channel incentives in the form of loyalty points. Channel sales people were awarded points above their normal internal commissions and the channel incentive was shown to garner mindshare from those sales people.

Best Channel Incentive Practices:

1. Channel incentives require top management buy in and a champion.
2. Deliver the short and long term factual and strategic goals of the channel incentive.
3. Have your channel incentive go after low hanging fruit by targeting a specific segment where you will the best ROI.
4. Establish separate sales objectives with or without the channel incentive.
5. Define exactly who is responsible for the channel incentive management, both within the corporation and with a third party administrator.
6. Do not expect a channel incentive to override fundamental marketing issues. Channel incentives are a to channel market plans, not a cure all.
7. Have the channel incentives communicate “what’s in it” for the participant.
8. Have the channel incentive award sufficient value in points and on a timely basis; no longer than one month from the behavior.
9. Utilize the channel incentive as an excuse to communicate regularly with the channel.
10. Make sure the channel incentive receives input from and buy in from your channel field sales force.
11. Establish a regular measurement of the channel incentive’s effectiveness and change accordingly.
12. Accept the fact that channel incentives have a ramp-up period and need frequent “re-launching.”

How not to run an effective Channel Incentive Program:

Theoretically everyone understands advantages of offering a channel incentive to your sales partners; i.e. variable expense against a quantifiable goal! Channel incentives have taken the place of traditional advertising and other channel marketing tools but, for all of the advantages, there are potential pitfalls to an improperly implemented channel incentive.

As a channel incentive marketing company with 30 years experience, it’s estimated that 25% of channel incentive programs fail and a full 75% don’t reach their full potential. Well, if channel incentives are a valuable expense, what does it matter if they fail?

Answer:
• Channel partner morale
• Lost opportunity expense
• Wasted time and effort
• Tarnished corporate image
• Is your competitor doing a better job?

The following is how not to run a channel incentive program:

1. Not establishing a clear set of realistic corporate objectives that can be reached via the channel incentive
2. Not creating KPI’s (key performance indicators) for managing the channel incentive
3. Not creating a performance motive for the channel incentive, i.e. if goals are not met, what is the alternative
4. Not sampling or getting input from channel partners
5. Not targeting the correct influencer in the sales cycle
6. Not orienting the channel incentive so that the channel partner understands the objectives and believes said objectives are in line with his / her objectives; i.e. “what’s in line for me” syndrome
7. Not making the channel incentive rules easy to understand
8. Not creating a variable or reward within the channel to promote enrollment and activity
9. Not making the channel partner’s involvement easy, quick and verifiable
10. Not rewarding the channel partner’s behavior immediately and not recognizing or communicating that this behavior is rewardable
11. Having a corporate single point to manage or take responsibility for the program’s success. Employer turnover and the “orphaning” of the corporate leadership is probably the most insidious reason for failure.*If you cannot “manage” the program, find an incentive management company that can. It is cheaper and better in the long run*
12. Not taking the information (connections and access to email addresses and the fact that channel incentive participants now have a reason to go to a web site) and using it to further corporate communications and objectives
13. Do not consider the channel incentive as static. This is a living, changeable program that must adapt for success
14. Not making the rewards easy to understand and perceived as valuable. Online incentives merchandise utilizing drop shippers on the internet have been proven to be attractive and cost effective
15. Not encouraging the redemption of points. Channel sales incentive programs are usually 2-5% of total sales. Making the point value obtuse or difficult to redeem is short sighted
16. Not making the channel incentive enrollment painless. Preregistrations and hand holding is not optional, it is imperative
17. Not effectively communicating the relevance or improvement of the channel incentive and why it is in the best interest to participate
18. Finally, not having a complete communication strategy is the most prevalent mistake and underused asset in a channel incentive program

Imagine you, the corporate sponsor, now have:

1. Access to buying influence via web and email
2. Information they want to hear
3. A regular reason for them to visit your website
4. A web venue that you can update with corporate objectives
5. A sales person crutch and reason to call the channel partner
6. An opportunity to create a legacy system that keeps paying back

Creating a channel incentive program is not something that should be treated lightly. If you are not willing to invest your heart and soul into the process, then find an outside resource that can. Creating a poor incentive is worse than no incentive at all.

Mistakes in developing a sales force incentive:

The reason for sponsoring a sales force incentive is simple, i.e. the corporate sponsor does not have huge fixed expenses unless the program is successful. This translates to sales force ROI!
Sales force incentives in conjunction with reasonable sales force compensation appeals to the higher level of hierarchy.
Having opened hundreds of sales force incentives, we estimate that 25% fail abd up to 60% do not reach their full potential.

What does it matter if the fixed costs are minimal?

Answer:
• You are not reaching the full potential and suffer from lost revenue and opportunity costs
• Poor sales force morale and possible employee turnover to competitors
• Poor use of employee time and money managing the program
• A sales force that lacks direction and time

Common sales force incentive mistakes:

1. Lack of management buy-in and input
2. Lack of clear sales force incentive objectives and key performance indicators to monitor and revise the program
3. Lack of reasonable, easily communicated goals
4. Not integrating your existing sales force CRM to a compatible rewards management system
5. Not having communicated the “what’s in it for them” incentive to the sales force
6. Not designing and implementing a year long sales force incentive promotional communication plan using mail, dimensional emails and physical and virtual sales meetings
7. Not creating sales force incentive rewards platform that is easy to access timely and effective communications
8. Not having sales force rewards that are worth while and attractive
9. Not viewing the sales force incentive as a living promotion that needs nurturing and renewal
10. That internal champion not taking advantage of all the latest resources from within or from an objective third party

A sales force incentive or rewards program nets as an and morale compress to a well managed sales force compensation system. It appeals to the ego of the sales force and rewards and recognizes appropriate behavior. Studies by the Incentive Research Foundation show ROI for sales force incentives vary but, are usually in the 100-400% range, making it very cost effective.

That all being said, a poor sales force incentive is worse than no incentive at all!

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Channel Marketing Program