Sell! Sell! Sell!

Channel promotions are a tried and trusted way of pushing stock through the channel, but do they really add value to business, or are they just a way of shifting aging stock and attracting customers away from the competition with free gifts?

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By  Mark Sutton Published  July 29, 2003

Driving sales|~||~||~|When it comes to keeping up the momentum in sales, nothing works quite like a good incentive programme. Offering your sales team the right rewards for hitting their targets can be the best way to drive business to meet quarterly targets, get business moving during quiet periods or help make a splash in the market with a new product. But promotions don’t always deliver on their promise of creating value. Far too often the Middle East has seen misguided sales promotions that don’t attract any attention, rewards that don’t reach the right people and offers that leave the reseller sitting on top of a lot of stock that they can’t sell, or worse, dumping it on the end user. So how can the channel make sure its promotions hit the spot?

One of the most important elements that any vendor or distributor needs to understand about their promotion is what are they trying to achieve. For the majority of schemes the objective is quite simply to drive sales, but more and more they are also aiming to build lasting channel business and create some loyalty in reseller partners. The aim of the programme will go some way to deciding its format. While almost all programmes involve a discount on the products involved, there is a diverse range of incentives and schemes. Some target the business owner, others are meant to address the reseller salesperson, and others aim for whoever represents the vendor within that reseller’s organisation.

The way rewards are earned differ too—some schemes offer participants a chance to go into a prize draw, others guarantee prizes for anyone reaching a preset target, others give the rewards to the first resellers to reach a target. Getting the right approach is important.
“The first thing to consider is trying to make it as fair as possible, so everybody stands an equal chance of winning a prize,” said Eliot Shepherd, marketing director of Tech Data. To address this, Tech Data sets individual targets for each reseller, allowing all sizes of company to participate on an equal footing. The distributors also try and steer clear of promotions that only have one big prize at the end.

“The most unsuccessful thing, I think, is quarter long promotions that end up with a raffle draw,” said Linda Al-Tarifi, marketing manager of Aptec. “Resellers are willing to take a chance with a promotion, to register, and to keep buying and giving their loyalty, but they are not very happy if they do not win. They think ‘I’ve bought so much and I’ve got nothing’.”

Deciding who to target with the incentive is also difficult. The prizes or rewards have to be appropriate and of interest to the target, and they also have to be aimed at the right person within the organisation. PC hardware vendor GENX is currently running a promotion for reseller salespeople, called Go for Gold, that rewards them with gold bars for reaching set sales targets. Atif Rasheed, regional manager of GENX explained why the company chose this promotion. “We can do a deal with the shop owners, but the people who are on the floor selling, are the sales people, so we need some incentives that are given directly to them,” Rasheed said.

The type of prizes on offer also need careful consideration. GenX went with gold prizes, said Rasheed, because they know that unlike cash it will not go into the owner’s pocket, but will usually be passed as a present from the salesperson to his wife or family—giving GenX mind share with an influence outside of the usual business sphere. Other prizes can prove problematic, such as holidays or cars. With both prizes it is almost impossible to share them between a sales team, and with travel in particular there are often problems with visas and so on. These problems also result in prizes that go unclaimed.

||**||Cash won't buy loyalty|~||~||~|Another problematic reward is cash, which often goes back into the company coffers rather than to the sales person. “Most people would rather have cash, but cash in most cases is not fair, it might just go to the company, then everyone’s effort is gone,” said Al-Tarifi. “We try to stick to gifts or vouchers—a lot of people say cash is like a bribe, and we have seen some of our competitors [offer cash prizes] and they are not very respected because of it.”

Tech Data is also reluctant to give cash prizes. “Cash is very difficult, it looks like brown envelopes [bribes]. We have gone for a mixture of physical prizes, holidays, vouchers—tangible gifts that have as much value as cash, but don’t have that dodgy feeling about them,” Shepherd explained.

While gifts are meant to incentivise the sales people, the distributors and vendors tend to allow company owners and managers to decide how they will be awarded, rather than dictate to the reseller.
An alternative to the cash prize, which is popular among distributors and vendors is to offer marketing development funds, usually as a rebated percentage of sales, that has to be spent on certain specified marketing activities. While this does allow the vendor to put funds into the resellers that perform well, and to create mind share and loyalty in a partner, it does not provide a great incentive for individuals.

Most distributors agree that trying to create loyalty through promotions is almost impossible, given that resellers, with an eye on the bottom line, will always look for the best pricing from distributors and vendors. However, getting that all-important mind share with the resellers is always a target. One solution is to mix business with pleasure—an approach that APC has had some success with. For several years the vendor has run a promotional scheme, whereby resellers can win a trip abroad. Once on the trip, the vendor will then provide a few days of training and professional education, with several days reserved for leisure.

Philip Hughes, general manager of APC explained: “Is it really of great value to your customers to offer them a free seminar on networking technology in a hotel, or would it be better to take them on a desert safari, provide them with entertainment and then the seminar? Which are they more likely to remember?

“We like to work on an event basis, we can take our customers somewhere nice, we can educate them about products and processes, motivate them and give them a good time—if you don’t have a way of adding more value to your business just doing a trip is a one-off thing, it is not looking at building your business and building your knowledge,” Hughes said.

||**||Creating the pull|~||~||~|Regardless of the form of the reward however, all well thought out promotions rely on two elements—both the push to drive sales, in the form of the incentive, and the pull, to create demand in the market. If the end customer doesn’t want the product, then there is no point in anyone trying to sell it. “It is very easy for us to just push, push, push, but we have to create a pull in the market as well. You have to do these promotions without stuffing the channel,” Rasheed said.

GENX has distributed promotional material targeted at end users for its Go for Gold campaign, and also plans to introduce a promotion for end users as well to create market pull. Aptec also includes a pull factor in its promotions, but there is only a certain amount that it can dictate to resellers in terms of managing their stocks, said Al-Tarifi.

“How much you can dictate to the market is limited,” she commented. “If someone wants a prize so badly that he is buying [too much] and damaging his company, that is something we cannot control, at the end of the day his manager has to sign his purchase order, and they will have to justify that, but I have never seen a situation where a promotion has driven sales to the extent of someone coming back for a credit note.”

Without the pull factor to clear stocks through the market, promotions become an exercise in stuffing the channel, something that is all too common. Vendors are often accused of using promotions and pricing to simply dump stock, and a lack of demand generation on the vendor’s part is frequently cited as a reason why some promotions go wrong.

One of the most sensitive types of promotion is the short, focused burst of sales during a spiff. Vendors and distributors run spiffs for many of the same reasons as they run long term promotions but they are also often used when there is surplus stock to be got rid of or to meet quarterly targets.

“From time to time you have got to consider promotions where you have a stock issue, either with us or with the vendor, but the key is to try and construct that in such a way that there is value all the way down the chain. It shouldn’t be just a stuffing exercise, even as a distributor we will do the pull activity to drive end user demand generation such as mailouts and marketing collateral,” said Sheperd.

||**||Don't stuff the channel|~||~||~|Running spiffs to meet quarterly targets is not a brilliant idea, because although there is a need to focus towards the end of a quarter, if a vendor simply cuts prices he will probably find he has one good month of sales, followed by two slow ones as the channel is now fat with his product. Resellers will also get wise to this tactic, and start putting off orders until the end of the quarter when they know the vendor will be forced into running another spiff to meet targets, which further degrades pricing.

There are ways to run stock-related spiffs without stuffing the market however, as Hughes explained: “The normal way you do it is you dump the price and get rid of it. If it is an old model, say a laptop, you do a special offer—you put an advert in the local newspapers and get rid of them.

“A month later some of the end users may realise they got screwed because the latest version just came out. So a more professional way of doing it is to find another vendor and team up with them. For example if you have a laptop, rather than dumping the price, you get hold of a printer vendor, you dump your price and buy the printer, and sell the printer and the laptop together as a bundle. There is a value-add but you can still maintain the overall integrity of your pricing,” Hughes said.

The tendency for vendors to cut prices and dump stock into the channel, particularly just before a new model is released, has declined somewhat in recent years, but given international grey markets and other factors, it is likely to carry on for now. The important thing for the reseller is to ensure that the end customer is aware that they are getting something cheap because it is about to go out of date. The end user has to have a certain level of awareness and responsibility for what they are buying, but resellers dump product on corporate clients at their peril.

“In the retail market you have got a passing customer, if you’ve upset him [by dumping stock], he will tell everybody that he knows, but that is not that important,” Hughes said. “If you were doing the same to a government organisation or large corporation, would you knowingly go out and mislead one of those customers? It is the sort of thing you only ever do once.”||**||

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