by Dale Taormino
We talk to organizations daily about their promotional allowance programs (MDF, JMF, co-op, etc). In the past several years we’ve certainly seen a decline in the number of co-op programs in favor of MDF programs; co-op seems to be going out of fashion. Are we seeing the end of co-op? Is this trend a good thing?
Before my thoughts on this, a side note: co-op programs are accrual-based programs awarding channel partners dollars based on a percentage of their prior sales. Market Development Funds (MDF) are discretionary-based programs awarding partners dollars based on the requested activity/plan presented. Overall funding in the case of MDF may be based on either prior or forecasted sales – or simply out of a broader marketing budget.
We’ve heard several reasons for moving away from co-op: 1) the program becomes viewed as an entitlement within the channel; 2) funds being used for low-value activities/lack of demonstrable ROI; and 3) the move from marcom activities to more biz dev and partner enablement activities.
The first two really have nothing to do with the program funding model, but whether or not a program is structured and managed well. Just because the funds are accrued, doesn’t mean you can’t have guidelines and approvals to use them and ensure they are spent on activities that generate returns (we’ve helped folks re-design and re-launch co-op programs to address just these issues/concerns).
The third reason is more of a historical legacy. Co-op funds were traditionally reserved for advertising and marcom activities that lent themselves more to expense-based accounting, whereas MDF funds were used for biz dev/market building activities (funded heads, demo equipment, etc.) that required a contra-revenue account. There is, however, no rule that requires co-op to only be for marcom activities, or only marketing expenses.
The more compelling reason why I think we’re going to see a continued growth in MDF (versus getting rid of co-op per se) is the changing nature of vendors’ channels. One, there is a growing number of partners that are a critical component to GTM strategy, yet do not ever take title to the vendors’ products/solutions. Having an accrual-based model is much more challenging (although not impossible) because definitive data on which sales they are directly responsible for (or responsible for influencing) may not be as clear cut. The second reason I think we’ll continue to see the growth of MDF-type programs is that sales volume has never necessarily been equivalent to marketing savvy and expertise. With so many vendors focused on the SMB/SME market, having good field-level execution has become even more critical. Having the flexibility to focus funding on the campaigns and initiatives that demonstrate the highest likelihood of success, regardless of that partner’s sales revenue, is an important benefit.
Some of you may recall Francis Fukuyama’s famous 1989 essay, “The End of History?” where he argued that the advent of Western liberal democracy signaled the end point of humanity’s ideological evolution and the final form of human government. While discretionary programs may be on the rise, knowing how far from the truth Fukuyama ended up being (recent events in the Middle East, case in point), I’d certainly suggest that it’s far too early to close the book on co-op programs yet.