Challenges of Moving From CO-OP to MDF

Challenges of Moving From CO-OP to MDF

Most companies that sell through distribution support their channel partners with some form of market development funds (MDF). This set aside usually starts a percentage of revenue, or CO-OP, to support partner efforts in developing new market opportunities. This is a win/win for both brands and channel partners when done right as it stimulates revenue growth.

However, most brands will reach a point when they feel a simple revenue set aside is not working and will look to change the program. This usually occurs when they realize:

  • large portions of funds are going unused
  • the only partners participating are the top revenue producers
  • co-op ad funds have become an entitlement and aren’t used as intended

All the above, drive brands to consider alternative disbursement methods. This usually starts with subtle changes to co-op guidelines. When numerous small changes don’t work, brands often consider more drastic measures. This post discusses some of the pros/cons of these bigger changes.

Increasing CO-OP Reimbursement Percentage

Most brands aren’t willing to give channel partners marketing funds if they aren’t willing to risk some of their own money. This is why most co-op advertising programs start out by reimbursing 50% of the actual spend. The idea is both brand and partner take an equal risk on marketing activities.

We mentioned earlier that brands start out making small changes to address co-op ad program challenges. This often includes raising the reimbursement percentage. One of the more drastic changes is to offer to pay 100% of the channel partners marketing expense.

The Problem with Increasing CO-OP Reimbursement Percentages

Co-op reimbursements are a financial transaction between brands and partners. Even if the brand is paying the vendor directly the channel partner is keenly aware of the amount of the transaction. If you lower the percentage of reimbursement it increases the amount coming out of the channel partner’s pocket. They will see this as a take away, so expect blow-back when you make the change.

How to Avoid CO-OP Reimbursement Percentage Blow-Back

Brands often want to experiment with the co-op reimbursement rate to see if it increases utilization. We strongly recommend this be done as a promotion and not as a permanent program change.

We also recommend brands vary co-op reimbursement percentages by activity; offering higher reimbursement percentages on marketing activities with the best ROI. Doing this focuses partners on the channel marketing activities most likely to produce a result.

Discretionary Funds (a.k.a., Market Development Funds, or MDF)

Unlike co-op ad funds, Market Development Funds (MDF) aren’t a quid pro quo for something that has already occurred. They are best used to jump-start channel partner activity that doesn’t already exist.  Brands frequently move in this direction when they want to engage channel partners that aren’t using co-op funds or get emerging partners engaged with their program.

The Challenges of Marketing Development Funds (MDF)

The Robinson Patman Act of 1936 requires resellers have proportionately equal access to funds, so brands can’t simply make funds available to a select group of partners. Brands also need to make sure their rules provide fair access to funds and they need to let all the channel partners know the funds are available.

This tends to drive brands down the “plan” path. Requiring channel partners create a marketing plan and then submit it for approval is a creative way to focus MDF. This is especially true when it is combined with a sales effort on the brand’s part to help targeted channel partners develop those plans.

There are two fundamental challenges with the “plan” path. First, marketing resources may be non-existent with smaller channel partners. This is one of the reasons the funds are going unused. This makes it hard to find anyone to collaborate with or take ownership of a marketing plan.

Second, smaller channel partners often struggle to follow a plan. Even if the brand’s sales organization does most of the work creating a plan, the channel partner might not follow it beyond the first couple of activities. Channel partners are frequently sales organizations that are very focused on this month and this quarter’s results. Plans that go beyond those time periods simply get lost in the shuffle.

How to make MDF work for your brand

If you have 40-50% utilization of co-op funds you might not want to upset that apple cart. Creating a new program with completely different rules often disrupts the valuable activity of those participating in the program. Also, co-op programs most often are utilized by top-tier partners. You don’t want your top-tier partners feeling like you are taking something away they value. Therefore, we often recommend brand’s move to a blended program versus pure co-op or MDF.

Create solid guidelines for using discretionary marketing funds

As mentioned above, there are laws that require you treat channel partners equally. This puts extra pressure on making sure co-op and MDF plan guidelines are thought through. Beyond legal issues, you’ll also need to think through the financial consequences of new disbursement methods and greater utilization of funds. If you don’t have team members with significant experience you should seek out a vendor for support at this stage.

Engage brand sales to help targeted channel partners create MDF plans

Using the brand’s sales organization to get targeted partners engaged with market development funds is a good idea. It’s also another reason to have a blended program. The sales organization’s strongest relationships with likely be with channel partners already engaged. If you don’t segment the program they will simply help the same partners use the new discretionary funds.

Emerging and smaller channel partners need additional support. Creating a blended program focuses the field effort where it is needed most. The field should be supported with easy to use plan templates.

Plans should be kept to one or two marketing tactics over short periods of time (30 to 60 days). This increases the odds they’ll be seen through. Plans should be submitted for pre-approval and approvals should have an expiration date to complete the activity.

Provide canned channel marketing campaigns and the tools to execute them

The best way to support this process is to package pre-approved marketing activities that can be easily executed by channel partners. This is where Through-Channel Marketing Automation (TCMA) comes in, these platforms provide brands the tools they need to package marketing campaigns and deliver them to channel partners.

It is important that marketing activities match what channel partners commonly do in their normal course of business. Through-Channel Marketing Automation platforms focus on the latest digital marketing techniques, but in many markets dealers still use tactics like radio, direct mail, vehicle wraps, lawn signs, etc. Make sure the marketing templates match the needs and frequently used tactics of channel partners.

Brands should also provide channel partners the autonomy to develop their own marketing programs. Requests for funds for all activities should include a projection of ROI and proof of performance at the time of filing a claim. Brands should use this information to learn local marketing techniques to add to their future channel offerings.

Streamline and Automate CO-OP & MDF Claims & Reimbursements

The administration of the program can’t be a burden on the channel partner or it will inhibit participation and fund utilization. Channel partners need to be able to submit plans easily. The process of reviewing those plans and getting necessary approvals should move quickly.

On the backend, it should be easy for partners to upload proof-of-performance documentation and getting paid should happen quickly. It is important to provide channel partners visibility to the payment process, so they know when the payment will occur. Cash flow is a big issue with channel partners and it is important to minimize their time out-of-pocket.

As market development funds programs mature it becomes increasingly important to have a technology platform to enforce rules, manage workflows, and provide everyone involved visibility to the process. As market development funding activity evolves getting off of Excel spreadsheets and onto an automated market development funding platform becomes essential.

We hope you find the above useful and thought provoking as you plan for next year. Please feel free to reach out should you need guidance or support for your market development funds program.