If you’re a traditional manufacturer or a B2B marketer, then you must be familiar with the terms ‘value chain distribution channel’ and ‘channel Loyalty programs.’
The former refers to intermediaries—distributors, dealers, stockists, wholesalers, and retailers—through which the end-user buys a product or service. The latter is a method to reward the intermediaries, aka channel partners, when they perform a desired activity or achieve sales targets and milestones.
This blog post details everything you need to know about channel incentive programs starting from various types to the challenges, solutions, and best practices to run effective channel incentive programs.
Types of Channel Incentive Programs
Channel incentive programs come in several different types. Some are designed to enhance sales volumes and profits of a sales channel, while others are created to enhance engagement with channel partners. Here are seven common types of channel incentive programs.
1. Sales incentives: Among the most popular incentives, these long-term programs are designed to enhance overall sales across a brand’s products. In this, channel sales partners receive incentives upon exceeding sales targets, volumes, and margins.
2. Sales performance incentive funds: These are performance-driven incentives that channel partners receive after promoting or selling specific products. When a brand invests in SPIFs, it motivates its channel partners to sell specific goods or a group of goods more quickly.
3. Marketing development funds: Manufacturers provide these incentives to their ecosystem partners—which include channel partners, affiliates, resellers, value-added resellers, original equipment manufacturers, and tech partners—to create brand awareness and sell certain products.
4. Partner rebate funds: These are volume-based incentives that motivate channel partners to sell a specific volume on a particular product line or stock-keeping units.
5. Cooperative marketing funds: These incentives provide channel sales partners with a percentage of a company’s overall sales and marketing budget. When channel partners succeed in selling more of a company’s products, they get these incentives.
6. Sales deal registration incentives: Companies reward channel partners with additional incentives when the latter refer clients and their referrals convert into sales. These rewards are extremely effective for companies that deal with highly driven and proactive channel partners who take additional efforts to refer clients.
7. Value-added reseller incentives: These incentives reward channel partners for adding value to a brand’s products and selling them with additional offerings. These are extremely useful for manufacturers to strengthen relationships with their partner network as well as enhance sales.
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Challenges in implementing channel incentive programs
A study conducted by Forrester Research found that 58% of channel incentive programs fail to meet their desired goals. That’s because running a channel incentive program has its share of challenges, which can make the programs ineffective if they aren’t mitigated properly. Here are seven big challenges in implementing effective channel loyalty programs.
1. Unclear goals
The worst thing a manufacturer or a B2B marketer can do is not have clarity on their goals. To create an effective channel loyalty program, you need to ensure that you define clear goals and have a robust roadmap to implement the loyalty program.
2. No connection between manufacturers and channel sales partners
One of the biggest mistakes many manufacturers and B2B marketers make is treating their loyalty programs as just transactions and not as opportunities to build robust relationships with their channel partners. It results in a wide disconnect between both parties and acts as a huge impediment to the success of loyalty programs.
3. Inequalities in rewards and performance
A loyalty program that doesn’t match the rewards with channel partners’ efforts and performance can never succeed. That’s why manufacturers and marketers must provide incentives that are directly proportional to their channel partners’ efforts and performance.
4. Delayed rewards
Did you know that just a slight delay in returns or rewards can cause a lot of discontentment? Several studies in psychology found out that, no matter how lucrative and personalized a loyalty program’s rewards are, they become less effective if they are delayed in reaching the right trade partners.
5. Inflexibility in choosing the right rewards
Inflexibility in choosing suitable rewards is a blunder that many manufacturing companies make. They fail to take the tastes and preferences of their channel sales partners into consideration and end up creating loyalty programs that aren’t well thought out and flexible. To make your incentive program successful, make sure your rewards are flexible.
6. Unsuitable loyalty software and platform
Having the right tools is instrumental to the success of any endeavor. For effective loyalty programs, you need to leverage sophisticated loyalty software and platform. To get high-quality loyalty solutions, you need to select a service provider who has proven credibility and a track record of delivering nothing but the best.
7. Lack of tracking and reporting tools
Last but not the least, not having the right tracking and reporting tools will keep businesses in dark and they won’t know if their loyalty strategies are working as per expectations or not. Without proper knowledge and insights about their loyalty programs, they can’t build the desired engagement with their channel partners.
Solutions to overcome the challenges
Even though there are many challenges associated with channel loyalty programs, the good news is there are effective solutions to overcome them.
1. Define clear goals
Before implementing a channel loyalty program, have some clear goals and build strategies around it. Make sure the goals are SMART (specific, measurable, achievable, realistic, and time-oriented), and create a roadmap with your marketing, sales, and finance team.
2. Select a sophisticated channel loyalty platform
To make your channel loyalty program effective, you must choose the right channel loyalty platform and software, which can enable you to craft personalized loyalty rewards, monitor the metrics constantly, credit the rewards on time, modify the programs and refine them regularly.
3. Use the right channel incentive programs
When it comes to channel loyalty programs, there are many types to choose from. Many successful B2B companies use various types of channel incentive programs for different channel partners. It enables them to personalize their rewards and makes their programs more flexible. Make sure that you choose the right types of channel incentive programs to motivate your channel partners and keep them loyal for a long time.
4. Monitor the performance of your channel incentive program
After implementing the right channel incentive programs, monitor performance and measure the actual results with the desired results. The right loyalty platform will allow you to track all relevant information about your channel loyalty program and generate reports.
5. Train your channel partners
To ensure your channel partners are aligned with your brand and products, you need to invest in training and development. Conduct regular training sessions and provide all necessary resources so that your channel partners have all the crucial information about your products.
When should you implement a channel incentive program?
If you haven’t implemented a channel incentive program already, there is no better time than now. But here are some cases that call for immediate implementation of an effective channel incentive program.
1. While starting a business
If you’re just starting, you will need the help of channel partners to take your products to the market. This will allow you to piggyback on the experience, market knowledge, presence, and connections of your channel partners.
2. While venturing into a new market
Just as channel partners are valuable for companies who’re just starting, they are also useful for those who’re foraying into new markets. Businesses, no matter how profitable and reputable they’re in a particular market, will benefit from the experience and expertise of established channel partners in the new market.
3. When reporting sluggish or decreasing profits
If your business registers sluggish or declining profits, an effective channel incentive program can come to its rescue. It will motivate channel sales partners to aim for higher sales, which in turn will enhance revenue and profits.
4. When profits are increasing
Implementing a channel incentive program at a time when the business is doing well may sound counterintuitive, but it will yield great benefits in the future. If your business is witnessing a surge in profits, then you can afford to invest in one or more right types of channel incentive programs.
Some excellent channel incentives
Gift cards: These are branded prepaid cards that have a specific value. These are among the best channel incentives as they allow channel partners to buy products that they truly value and have been planning to buy for a long time.
Cash cards: Unlike gift cards, cash cards are more flexible and can be used to pay bills, withdraw cash from ATMs, and of course, make purchases. If you’re not a big fan of gift cards, then you can consider giving cash cards to your channel partners. These cards have a specific monetary value and it allows channel partners to spend the money as they wish.
Holidays and experiences: Providing experiences such as exotic trips and weekend getaways to your channel partners will give them beautiful memories for a lifetime and will help you with positive brand association. Other experiences include tickets and passes to music concerts, movies, theme parks, sports and matches, and more such events.
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Best practices for successful channel incentive programs
When it comes to creating successful channel incentive programs,
1. Gain the support of your senior management
Before creating strategies for a channel incentive program, get the approval of your senior management. Without the support of your senior management, your channel incentive programs can never be successful no matter how much time, effort, and resources you put in.
2. Define a clear strategy and goals of the program
After gaining the approval of your senior management and finding sponsors, define the strategy and objectives of the channel incentive program in such a way that every stakeholder understands the program’s goals and roles.
3. Study and understand your target market
To create effective channel incentive programs, having a deep understanding of the target market is extremely crucial. Find out how responsive the target market is to your product and brand. What problems are you aiming to solve and how targeted are your incentives? These questions will help you in the long run.
4. Measure your program’s performance and recalibrate if required
After launching channel incentive programs, the most important step is to monitor and analyze the program’s performance and find out how successful it is in meeting the desired objectives. If the results fall short of expectations, waste no time in making necessary adjustments to improve performance.
All in all,
A channel incentive program is a crucial tool for manufacturers to engage and motivate channel partners. When crafted with proper strategy, your channel incentive program can work like magic for your brand. It can open doors to new markets, enhance brand awareness, boost sales and revenues, and reinforce loyalty not only among channel partners but also among customers.
At LoyaltyXpert, we have years of experience and expertise in creating highly successful channel incentive programs. If you intend to run an effective channel loyalty program, then we can help you with the right solution. To know more about how we can help, contact us today.