Channel Champion Blog

by Peter Hornberger
PeterCFNA_captionIt is commonly understood in the high-tech channel that Co-op is a dead term. Yes, there are a few lingering programs around, but the majority of vendors have removed that term from their investment stack — opting instead for MDF (Market Development Funds). But I fear that we threw out too much — specifically the accrual model.

Why did the industry turn so decisively against Co-op? I believe there are three key reasons:

  • The type of activities — Co-op programs are notorious for wine-and-dine, golf outing, logo’d t-shirt, branded pen (you get the idea) type activities. These activities seldom drive revenue lift and are some of the worst ways to invest in a partner.
  • The entitlement — Co-op programs stood static for so many years with little revamp that partners started counting it as part of their annual income. The partner gets an accrual percentage of last year’s sales and can spend it on the same stack of 15 activities they always have. When vendors started to recognize the ineffectiveness of the activities above, partners threw up their arms and threatened to quit if their co-op money was taken away.
  • The small-growth partners — Co-op programs worked for big partners because they drove enough sales to earn a fair amount of money. But these same Co-op programs were terrible for small partners who could never earn enough money for the vendor to determine if they would perform better with the Co-op investment.

So vendors started the lengthy process of moving away from Co-op, and while changing programs actually takes some time, we have seen the shift accelerate over the last 3-4 years. But the mindset changed almost instantly — all of a sudden everyone began to bash Co-op and praise MDF. The term Co-op started being dropped from program titles, web sites and channel linguistics in general, even while programs technically still existed.

Which leads us to where we are today. The Co-op name is almost never used, and while some companies still run Co-op or blended programs, the vast majority have either added or focused on proposal-based MDF. But did we go too far too fast? Last week I was at the Channel Focus North America conference and I noticed the idea of accruals coming up in a couple of interesting ways.

  1. Some companies are considering taking funds from their quarterly rebate programs and pushing those earnings into their MDF program. The problem with rebate programs is a discussion for another blog (hint: entitlement!), but if you consider this new idea, you’ll see that this is simply an accrual program. Rebates are percentage payouts on sales — take those dollars and push them to your MDF activities and you have an MDF accrual program.
  2. Another company told me that they are ramping up their Co-op efforts, but the key difference now is the activities that are offered. Vendors are limiting Co-op dollars to activities that actually move the needle. The thinking is this saves partners from themselves — instead of being tempted to just pad their margins with Co-op or rebate dollars, they instead receive accrual dollars towards approved marketing activities, essentially teaching partners to perform activities that will actually drive their business forward.

Vendors may have thrown out the baby with the bath water when they dumped #Co-op Click To Tweet

I think vendors may have “thrown out the baby with the bath water” with their full-scale dump of Co-op. Accrual models can be immensely valuable in your partner network if you require partners to use their earnings on strong marketing activities.

And don’t mistake my meaning — discretionary models are important too. You need a blend throughout your entire chain. Discretionary will give you the opportunity to invest in the best partners — the ones that will double or triple your investment. Put these two programs together, working in tandem with guidelines and restrictions, and you’ll have a strong channel program.