These days, we are all social engineers and psychologists, as our understanding of human behavior—and how to influence it—has grown. For those of us in sales, this is a particular pertinent skill to have; ultimately, the goal of the salesperson is to guide a lead’s thinking in such a way that a sale will be closed. For management, on the other hand, psychological tactics are used to shape and direct the workforce so they can better fulfill the company’s goals and mission. If you work with people, then you know that reaching their minds and hearts is the key to getting them to behave in the desired manner.
That is why channel incentive programs have been so successful when it comes to getting the behavior you want out of key partners. Ultimately, these programs rest on the simple idea that people are more likely to perform the desired behavior when they are positively incentivized, i.e., they stand to benefit in some manner, or otherwise improve their current status, by behaving in the desired manner. Study after study has shown that negative reinforcement and negative incentives are far less powerful than positive reinforcement or positive incentives. Channel incentive programs tap into that foundational element of our psychology and put it to work for you. (Check out this video: https://www.youtube.com/watch?v=g14bvUk05Gs)
MDF, SPIF, and Rebate Programs
The MDF, or “market development funds,” program is a channel incentive program wherein funds are given to partners at the vendor’s discretion, with those choices being made based on the partner’s alignment with the vendor’s strategic goals. While the MDF approach allows for funds to be distributed dynamically in order to address any changes the market might see, the MDF program does require a multi-level pre-approval process, and often can expose vendors to litigation if partner access to funds is not properly tiered. On the other hand, this program can be used for activities categorized as contra-revenue expenses, which carries with it its own set of pros and cons.
Moving on to other kinds of channel incentive programs, SPIF and Rebate programs are among the simplest sales incentives for you to develop and deploy to any given sales team. Specifically, SPIFs provide a guaranteed payout with short-term duration, allowing for a “flash-in-the-pan” approach that often works well, given the immediate satisfaction it can supply. These programs are specifically most effective when used for short sales-cycle products in a highly competitive environment, wherein you have minimal infrastructure and want quick results. Problematically, it is less effective over the course of a long sales cycle, and you may even require 1099 compliance.
Co-Op and Loyalty Programs
Co-op programs, otherwise known as “trade promotional allowance programs,” are incentive programs wherein partners can earn credits for marketing expenditures based on sales performance. Co-op programs are much easier to plan in advance than other incentive programs, and they require little in the way of pre-approval. Typically, this program is best suited for qualifying marketing expenses. It should be noted, however, that marketers can come to feel entitled to the program’s benefits, and it can be difficult to control or change the distribution of funds throughout the program’s duration.
Loyalty programs are designed to build relationships, with the idea being that participants can sell a product, perform an activity, and, thus, earn points or some other form of “currency” to put toward a particular reward. Loyalty sales incentive programs are intended to reward behaviors over the long-term, though they also can support short-term objectives. It is easy to model loyalty programs over time, and your reward budget tends to be predictable. On the other hand, loyalty programs require a longer planning process in order to offer support to both long- and short-term objectives, and there is a fair amount of technology, management, and communications involved in a loyalty program.
Be Prepared
When it comes to the rewards these programs offer, you have several options: travel or merchandise, cash, or reward cards. Ultimately, the reward that is right for you and the program’s participants depends on the kind of program you are running, whether it is long or short term, and what kind of infrastructure you are working with.
Having made the decision on rewards, you need to ensure that your accounting practices are up to date and capable of handling the legal risk a rewards program exposes your company to. As with any venture, there are risks, and even so, you won’t see 100 percent of the participants suddenly improve their performance. With incentives, it’s the 80/20 rule: 80 percent of the programs’ participants will be low performers, but 20 percent will rise to the occasion and make a difference.
To see an infographic on successful channel incentive programs, visit: http://www.channelmanagement.com/resources/successful-channel-incentive-programs/
T. M. Loyd is a staff writer with RankPop, an instructional designer, and an educator. He blogs on a variety of issues ranging from finance to travel, gaming, and consumer issues. He is from Lancaster, PA, and is as American as a horse and buggy.
