Four key factors for channel partner loyalty

Loyalty marketing agency ICLP has published a new white paper that aims to help technology vendors identify areas in which relationships with their channel partners can be made more profitable.

Channel partners provide a primary route to market for most technology vendors who see targeted investment in channel activities as one of the most effective methods to influence behaviour and performance.

But, given that vendors cannot generally afford to offer the same level of contact to all their partners, they need to make a number of choices about the level of support they offer, and to whom. According to ICLP, achieving the right balance for cost-effective distribution is critical to success.

In an indirect relationship with the end customer, the vendor (as a manufacturer) does not always share the same perspective as the channel partner (as a reseller, retailer or advisor to end-users).

Each often claims the others do not fully understand their business, so it is common for vendors to complain about partners' take-up and performance in channel programmes, while channel partners begrudge the time and effort required to participate in these programmes. In short, simplifying these programmes' processes is a vital channel partner priority.

Vendor channel programmes aim to drive incremental channel partner behaviour, but one approach cannot cover all sectors because channel partners come in all shapes and sizes. For example, they may be:

• Services-only solution providers, who do not actually transact products, but have a major influence on the brands their customers end up with;
   
• Large box-shifting fulfilment players who just take orders (such as direct marketing resellers). Notably, some vendors also play this role when dealing on a direct basis with their own customers;
   
• VARs (value added resellers), specialist retailers, and others - a mixed category, both providing service and fulfilling orders. Most vendors will find that their channel partners fall into this "mixed" category.

Well-designed channel programmes need to address the needs of these different partner types who aim in turn to serve different clusters of buying customers. When they fail to take these into account, channel initiatives can be ineffective with limited ROI.

As a result, vendors need to take steps to better align their arsenal of channel initiatives more closely with the needs of their individual channel partners. By aligning more effectively vendors and channel partners can build a WIN WIN situation to achieve their defined goals. Where those goals are misaligned, channel funds are likely to be misapplied.

There are four critical steps which have been identified that have a major influence on the overall performance of a channel programme. These steps are described in detail in the full white paper, and should help vendors to optimise their relationships with channel partners:

1. Prioritise and review success metrics
   Through the use of metrics both vendors and channel partners can set clear goals which define how success will be measured. There is no 'one size fits all' - success metrics will vary by company and also by segment, but it is essential that they reflect the vendor's priorities for channel partner performance. Success metrics can be broken down into hard metrics - for example sales volume and profit margin - and soft metrics - for example marketing plan development and new sector penetration. In order to achieve success, vendors should focus on a few key metrics which relate to overall business goals, rather than picking too many and hoping to achieve just a small few.
    
2. Conduct ongoing data analysis
   Through data analysis (i.e. transactional data, profiling and surveying), vendors can form a deeper understanding of their partners' business behaviour. This will help vendors to avoid the very real danger of arbitrarily targeting and misaligning goals, segments and products which do not match the business priorities or partners' needs. Ongoing tracking of purchase behaviour over time makes it possible to identify partners which are expanding, decreasing or stabilising - and thus provides a sound base from which to make intelligent channel investment decisions.
    
3. Apply relevant segmentation
   Segmentation is a common principle, but all too often vendors do not go far enough beyond published membership tiers which tend to define segments too broadly. Therefore an internal, unpublished and more granular segmentation needs to be applied. This will enable vendors to better identify different partner needs in the middle tier and ultimately drive desired behaviours. Effective segmentation (both published and unpublished) through a channel programme can, in conjunction with data analysis, enable vendors to understand their most frequent purchasers, the highest performers and those who are underperforming but have the propensity to grow. This can enable highly tuned promotions and benefits to be successfully used in order to achieve the vendor's specific objectives.
    
4. Improve targeted communications
   The power of targeted communications to channel partners should never be underestimated by vendors. Through effective segmentation, it is a key way to engage partners to increase programme participation and sales. Typical communication objectives may include promoting rewards and recognition, encouraging interaction or providing education and technical support to partners.

The vendor's success metrics should be driven by the overall goals of their business and not by the competition or by industry standards. They serve as the measurement of progress and should be agreed within the vendor's business at the outset. The vendor needs to select those success metrics which are measurable, match their business model and align with partner needs. While the bottom line will always be key other, 'soft' factors such as training or marketing support will also play a role.

According to ICLP, these success metrics can be categorised as either 'hard' or 'soft'. For example, hard success metrics might include:

• Sales volume or incremental revenue;
• Profit margin;
• Market share;
• Conversion ratios;
• Repeat purchases;
• New product ramp/adoption.

Soft success metrics typically include:

• Customer satisfaction;
• Product certification training;
• Marketing plan development;
• Monitoring and tracking;
• Case studies/client referrals;
• New sector penetration;
• Early adopter.

The full white paper, entitled 'What do you do if your Channel Partners are not performing', has been made available for free download from ICLP's web site - click here