Market Development Funds
My previous article “Help! I Need to Build a Channel Partner Rewards Program”, was based on discussions held with the many vendors, distributors and resellers at The Channel Meetup UK 2019. One of the channel incentives continuously referenced by attendees was Market Development Funds.
So in this week’s article, I thought I’d present key findings on what is happening in the industry regarding Market Development Funds right now. It might also be beneficial to share a few memorable quotes we heard on the day. Some might be a wake-up call for all players in the channel ecosystem that collectively we can do more to automate MDF program processes and auto-calculate successful outcomes.
“We have BUDGET, but we have no time to run MDF programs”.
“We take disciplined risk when offering MDFs for our ecosystem partners”
MDF Program Challenges as mentioned at The Channel Meetup UK
- Margins are wafer thin and all incentive programs are carefully monitored by CMOs and increasingly by finance. MDF is particularly tightly controlled.
- Channel Marketing teams are “TIME POOR” and whilst they may have budget, they simply don’t have capacity in their working day to design, launch, coordinate and manage MDF programs. Certainly not based on the level of demand they receive.
- MDF processes and programs are still too manual. Automation is not being utilized.
- Channel partners frequently perceive vendor MDF programs as too complicated.
- Vendors’ have to spend too high a proportion of their marketing budget on MDF programs – in some cases as high as 22%!
- There is a lack of clear metrics to show success of MDF spending.
Typical MDF Funding Mechanisms
- Vendor funds the MDF program 100%
- Vendor will offer MDF funding of 50% of total cost. Vendors want both parties to have a stake in the success of the program and want their Channel Partners to have “skin in the game”.
Typical Market Development Fund Application Process
- Email requests (most common)
- Application Form submission (usually MS Word document submitted via email)
- MDF request via Partner Portal (very rarely mentioned)
Typical Channel Partner uses for approved Market Development Funds
This was the most frequently mentioned usage for MDF dollars. The type of events predominantly falling into two categories: (1) Niche Event designed by the channel partner in conjunction with the vendor or (2) Public Event attended by the channel partner to promote the vendor offering(s).
In the case of niche events, a distribution channel partner typically designs something innovative and creates an exclusive gathering that entices resellers to attend and become go-to-market partners for the vendor’s offering. If the MDF were allocated to a reseller partner, they would typically design an event to entice prospects and customers to attend and showcase the vendor offering(s). Alternatively, Distributors and Resellers may also choose to use approved MDF dollars to attend well-known public events and use these to promote the vendor offering. For example, if you offer solutions in the cyber-security space, your channel partners may look for MDF budget to attend the leading events in their geographic region(s).
2. Demand Generation (E.G Telemarketing Campaign)
This was cited by vendors as the second highest request for MDF allocation. Distributors use the funds to reach out to existing and potential resellers, to build up the vendor reseller network. Here resellers use their allocation of MDFs to build a customer outreach campaign. This could include a call-out campaign to their existing database of contacts and could be extended to include purchasing “marketing lists” to extend the reach of the call-out program.
3. Market Expansion (either geographic or into a new industry sector/vertical)
This is another extremely common spend area for MDF allocation. The distributor or reseller may use the funds in a variety of ways which includes:
- Directing some funding at specific marketing campaigns in a new geography e.g. building an on-line presence for that specific country or region in local language. It might be combined with some physical advertising campaigns
- Directing some funding at a PPC campaign in a new geography or region e.g. spending additional money on a Google AdWords campaign or recognized syndication sites
- Market analysis / research e.g. meeting with industry analysts or local market experts to assess how best to enter the new territory or industry
- Promotions – this could include, for example, offering a limited time “packaged” offer of the vendor solutions in a new geography or sponsoring an industry specific forum to promote the vendor’s brand.
4. Webinars and/or Podcasts (typically involving a well-known industry thought leader)
Spending MDF allocations on Webinars and/or Podcasts is becoming increasingly popular – generally in line with the continuing trend for content marketing. However, to differentiate themselves, distribution and reseller partners are designing and running Webinars and Podcasts with industry thought leaders to bring an expert or knowledge perspective to “soften” the otherwise hard sell. Using MDF money to pay for the “thought leader” guest speaker is usually the biggest drain on fund allocation.
Generally, most vendors we spoke with had no measurable targets set for MDF program outcomes. As the old saying goes “if you can’t measure it, you can’t manage it; if you can’t manage it, you can’t control it”.
One of the most commonly agreed themes articulated by attendees at The Channel Meetup is that measuring the return on investment of MDF programs is virtually impossible for most vendors. However, for any MDF program, a jointly agreed set of metrics for success between vendor and partner should be defined and documented. With continuous reviews to assess performance.
MDF Metric Types
- Activity Metrics
- Outcome Metrics
Activity metrics primarily focus on measuring what channel partners have done to drive some enhanced business performance for the vendor’s offering(s). For example, let’s assume a vendor agrees to provide MDF dollars to a newly appointed reseller for a telemarketing campaign. The activity metrics could include measures like:
- No. of outbound phone calls made
- No. of outbound phone calls answered
- Duration of answered outbound phone calls
- Number of emails sent to prospects
- Number of emails opened by prospects
Outcome metrics should ultimately be the measure of how successful the MDF spend was. For example, if we refer to the telemarketing campaign, the following would be good metrics to agree upfront:
- No. of qualified customer leads generated by the reseller
- Number of new trial requests generated by the reseller
- Quantity of new Deal Registrations logged by the reseller
- Value of closed/won business created by the reseller
Key Considerations for Vendors Developing an MDF Strategy
A good starting point is to consider this century-old wisdom from Rudyard Kipling:
“I keep 6 honest serving men, they taught me all they knew; their names are What and Why and When and How and Where and Who.”
When designing your MDF strategy, we suggest asking channel partners who wish to receive an allocation of your available funds, these 6 key questions:
- WHY: Why do you want these funds (e.g. to win new logos, expand into new geographies, other?)
- WHAT: What exactly will you do with our MDF dollars? Will you run an event, a webinar, other?
- WHO: Who will you target with your allocated funds?
- WHEN: When will you launch the MDF program(s)? Does this timing make sense for our financial year?
- WHERE: Where will you deploy the promotion e.g. which geographies or industry sectors?
- HOW: How can we measure the success from your MDF spending? Increased deal registrations, trial downloads, increased qualified leads, others?
To learn more on how market-leading vendors automate and manage their MDF programs, check out the Channel Mechanics capabilities page
Some Concluding Thoughts…
Market Development Funds are an important component of any channel ecosystem. From the many discussions on this topic we had at the recent Channel Meetup UK, vendors believe they are not maximising the return on investment they should be getting from their MDF programs. On the other side, channel partners believe most vendor MDF programs are too complicated. Both sides agree that the process to administer, manage and measure MDF programs is too manual and very time consuming.
Is your organisation willing to embrace automation for your MDF programs? Automation will give you back the most precious commodity of TIME; Time to allow you design better and more innovative MDF programs that offer a major differentiating factor that entices your channel ecosystem partners to sell more of your solutions, rather than those of your competitors.
Check out the next Channel Meet Up Event: Vendors are from Mars. Partners are from Venus.