Incentives are a complementary activity

I recently took a closer look at the subject of partner incentives for a forthcoming article for MicroScope, which produced some interesting perspectives (even if I do say so myself). Space constraints, however, meant I couldn’t spend any time looking at one of the areas I had planned to mention – the potential pitfalls around incentives for vendors and partners.

For example, how do vendors ensure they time incentives right for their latest and greatest products without undermining more established products and damaging short-term revenue for partners?

Lewis Simmonds, UK channel director at Hewlett Packard Enterprise, was pretty blunt in his response. “The pitfalls vendors have to face mainly hinge around the return on their investment,” he said.

The risk for partners, he warned, was that they would steer customers away from the right solution by aiming for certain incentives. “Not only can this reduce their chances to win a contract, but it can also affect their customer satisfaction rating,” said Simmonds. Partners also needed to consider the tax implications, he said, “especially of deal-based incentives, as well as prolonged sales cycles for certain solutions that could impact their cashflows”.

Tom Herman, vice-president of global channels and alliances at the Synopsys Software Integrity Group, said timing could be “a key factor”. If an incentive was announced too early and crossed a fiscal quarter boundary, a channel partner might “hold off on closing deals in the quarter to get the incentive the following month or weeks”, he said.

Herman accepted that tying incentives to a subset of products could have the unintended consequence of negatively affecting the rest of the portfolio. “One way to get around that,” he suggested, “is to also include an incentive tied to the overall deal that includes the ‘promotional’ products or a multi-product incentive”. He also warned that specific accounting rules relating to MDFs [marketing development funds] in some countries meant some activities might not qualify and “could be viewed as a negative if the incentive is all MDF-based”.

Carlos Morales, senior vice-president solutions at Neustar Security Services, also highlighted the law of unintended consequences. Vendors with a broader portfolio of products might use incentives to drive sales for a specific product line, he said. “This is suitable if the partner has ample capacity for additional growth or the attention is taken away from other vendors. However, if the partner has limited capacity, then all that may be accomplished is moving sales from one product line to another. If the first product is more profitable, this would be bad for the vendor’s overall business.”

Another big pitfall, said Morales, was vendors expecting partners to be market makers but not providing the appropriate support systems or incentives to make them successful. As a result, he added: “Most vendors’ partner portfolio consists of a few partners that drive most of the business and many that drive little to no business. All the work courting, signing and training the partner is wasted.”

Eleanor Thompson, global partner programme manager at FiveTran, offered another perspective. “Vendors really need to ask themselves if the benefits they offer are truly benefits for the partner,” she said. “Deal registration is really common to see in a list of benefits, but knowing who the customer is and having detailed information on a deal often benefits the vendor more than the partner. Be honest about what you’re offering.”

Thompson argued that communication was key “when offering time-based incentives for new products, and so is supporting partners with joint business plans so that they can prepare for how that might look for them in future”.

According to Kevin Bland, Red Hat’s EMEA partner ecosystem director, one of the biggest issues for vendors is “the dreaded quarterly budget cycle”, adding: “Often things need to be planned for, activities executed, proof provided and money claimed, all within a quarter.” 

Bland added that the best way to avoid pitfalls when planning and budgeting for incentives is to keep it simple and outcome-based. “The simpler and more precise the outcome, the greater the chance of success,” he said. 

Alex Walsh, Veeam UK& I channel and alliances director, said the potential tension between vendors’ desire to plan for long-term growth and build relationships with their partners and the sometimes tactical nature of incentives could “deter them from their overall growth plan”.

Vendors needed to ensure incentives were aligned with the business priorities for both parties and that a new product or focus area did not “throw their overall objectives or marketing strategy out of the window,” said Walsh. “Ultimately, vendors need partners to keep selling their products after the incentive scheme has finished, so consistency within both sales plans and wider strategies is crucial. The incentive shouldn’t be the sales plan – it should be a complement to it.”