Marketing Development Funds

Marketing Development Funds?
In 2013 and 2014 Outsource Channel Consulting Director, Kit Craig, lead the channel marketing team for IBM’s software business in Australia and New Zealand; a team with an annual MDF budget of around $1M supporting an overall channel business of just over $50M. Kit’s team was one of only three in IBM worldwide to fully utilise its MDF budget every quarter for those two years. While doing so, his team grew IBM’s software channel revenue derived from MDF by 85% in 2013 and 120% in 2014, and was recognised by IBM for leading two of the top three MDF campaigns worldwide.

In this blog he discusses the thorny problems many vendors and channel partners face in utilising vendor marketing development funds.

What is a Marketing Development Fund?

By Kit Craig, Channel Consulting Director

Marketing development funds (MDF), co-op marketing, reseller growth funds, co-marketing … whatever name specific vendors give to it, it’s free money. It amazes me, therefore, that every vendor I speak to complains that their channel partners either aren’t utilising their MDF, or they’re using it but not generating revenue from it. Who doesn’t want free money?

The issue is often dismissed as channel partners not “getting” marketing. I accept that most channel partner companies don’t have dedicated marketing staff and that sometimes salespeople dismiss marketing as the colouring-in department, but in my experience the senior management of most partners have a clear understanding of the benefits that good marketing can bring them:

1. it increases revenue by increasing demand, and consequently decreases the overall cost-of-sales

2. it increases the brand recognition and, therefore, the value of company

3. it reduces the sales cycle by engaging prospects earlier

4. it helps improve profitability by helping companies differentiate themselves, rather than only having the price card to play to win new business.

Why is there a problem with MDF?

If channel partners understand the benefits of good marketing and are being offered free money, why is there a problem with MDF?

There are generally four reasons why MDF isn’t used by channel partners, and usually all four are in play concurrently.

1. Channel partners want to market solutions, but MDF is allocated by product lines.

MDF is siloed by vendor and, often, by product set. Often, it’s supported by marketing portals that contain very product-specific marketing content and pre-packaged vendor campaigns. It takes a lot of mental agility to create a marketing campaign that breaks out of the siloes, and often it’s just too hard to try to translate the product message into a solution one, especially when the solution message may span multiple vendors and multiple MDF sources.

Long gone are the days when a channel partner was happy to hide behind the brands of its vendors. Partners need to drive their own brand identity, and MDF programs that force them to drive vendor branding are therefore counter-strategic.

2.The administration costs exceed the marketing benefits

Large vendors, especially multinationals, seem to forget that even the largest channel partners are mid-market entities, and that most fall into the category of small businesses. A heavy administrative burden in requesting, reporting and/or claiming MDF has an intolerable effect on cash flow for these companies. A marketing campaign that will produce revenue in 90 days is worthless if the company runs out of cash in 60 days.

Channel partners usually have more than one vendor. When each vendor is imposing its own version of the administrative burden, the situation is exacerbated exponentially.

3. Good marketing requires good marketing skills, and the channel lacks them

Marketing is a true profession in that it has a body of knowledge that can be studied and learned through formal education and professional development. Qualified, experienced marketers are expensive to hire and retain, and only a tiny minority of channel partners can afford even one. That leaves significant skill gaps in the channel in planning and executing marketing campaigns.

Often the channel partners will look to the vendor to close those gaps, but I have found that vendors often can’t do that because they put their most junior marketing people into channel marketing roles, or they have devolved their own marketing expertise off-shore.

4. Marketing effort has no linkage to partner revenue

This is often summed up as “marketing doesn’t work; I’ve tried running a marketing campaign and have seen no results from it.”

Although this is really a combination of the first three reasons, there are several particular elements to it:

  • I have found that campaigns often lack a clear, specific target and consequentially aren’t measured appropriately. “Doesn’t work” becomes a gut feel statement rather than a reflection of industrial-strength metrics.
  • Marketing is a marathon, not a sprint. Most MDF program structures mitigate towards one-off tactics, but we know that marketing works best when it is continuous and multi-touch.
  • Sales people like high profile marketing tactics, like events, but these aren’t necessarily the best choice. The target audience must be clearly defined and its needs, pain points and buying behaviour understood before an appropriate promotional mix selection can be made.
  • Sales execution must follow marketing execution, with leads followed up promptly and thoroughly. My team in IBM Software Group identified that the biggest weakness in planning partner campaigns was inadequate sales resource to respond to the planned demand generation.

So what is the solution?

Partners can resolve all of these issues by making use of specialist help. Many vendors are attempting to abdicate their marketing responsibility to distributors, but this ignores the fact that most distributors are aligned along the very siloes that are at the heart of the problem.

Resolution requires broad knowledge of the key solution themes in the market, clear understanding of the vendors’ programs and deep marketing expertise to plan, execute and manage campaigns through and into the sales cycle. That’s a rare combination.

I joined Outsource because it was the only agency I was aware of that was tightly focussed on the IT channel and had the resources to operate both strategically and tactically. Our Fund My Growth offering is a unique response to the great MDF problem faced by vendors and channel partners alike.

Click below for more information about our Fund My Growth service.