MDF management: Leaving market development funds on the table

In this report on MDF management, find out what prevents IT solution providers from spending their market development funds.

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Market development funds (MDFs) are often left unspent, creating frustration among vendors and anger among partners, according to the findings of a recently released study by IDC. Yet, both sides agree that despite the disconnect there is value in continuing to support partners' marketing efforts.

"Partners want to take advantage of marketing development funds and other marketing resources, but vendors seem to do as much as they can to make sure it's as difficult as possible," said Marilyn Carr, director of software channels research at IDC, and one of the study's authors.

Partners want to take advantage of marketing development funds and other marketing resources, but vendors seem to do as much as they can to make sure it's as difficult as possible.

Marilyn Carr,
director of software channels research, IDC

Another source of irritation is how partners are perceived. "What partners tell us over and over again is that one of the most insulting things vendors can say is that they consider their partners an extension of their sales force," when in fact they are independent businesses that usually have relationships with more than one vendor, she said.

Vendors' focus on their own sales cycles can also be problematic for partners. "They expect partners to jump whenever a vendor's sense of urgency reaches a certain level, such as at the end of the quarter, when funds need to be spent, or to support a new product launch that had been in the works for months but not yet announced," she said. Carr believes vendors don't put themselves in a partners' shoes. "Lack of empathy," she said, "is perhaps the single biggest reason why funds go unspent."

The IDC study did not quantify what percentage of MDFs go unspent every year.

The root of the issue

According to the MDF management study, part of the problem is that partners are not adept at marketing. Among respondent companies, which include systems integrators, VARs and MSPs, 58.7% were founded by a technology person while 34.5% were founded by a business person. As a result, most are more focused on the day-to-day challenges of being a business owner and dealing with issues such as managing cash flow and human resources, according to the study.

"Most don't have high degree of marketing expertise," agreed Kevin Rhone, director of Channel Acceleration Practice at Enterprise Strategy Group. "Many resellers were founded and are led by someone with a sales background or even more so with a technology background, and their primary goals are servicing clients."

This is particularly an issue with small and medium-sized business partners who are servicing smaller customers, Rhone said. Vendors want them to add new clients, but that poses a challenge for partners that are trying to service their existing ones. He said he hears from partners that vendor marketing programs are confusing, unintuitive and not easy to use, but that vendors would disagree. Partners "tell me vendors have the mentality that 'If I build it they will come,' meaning 'If I produce lots of nice sales and marketing materials, my partners will automatically want them and figure out how to use them,' and that's not always the case."

Leaving MDFs unspent is "a common problem, not a conscious practice," he said.

The IDC study found that the main sources of partner frustration include:

  • Last minute windfalls: Vendors releasing MDFs two or three weeks prior to the end of a quarter when marketing realizes it has budget money to use or lose.
  • Too much red tape: Having to jump through complicated hoops to get the funds.
  • Constant changes: Partners claim vendors make several modifications to marketing plans.
  • Random rebates: Program parameters are often complicated and may change frequently.
  • Painful audits: While necessary, proof-of-performance requirements and guidelines are often not clearly communicated.

The vendors' and partners' take on market development funds

Cisco Systems Inc. is aware of the trend of partners leaving money on the table and monitors that and has done outreach, said Sherri Liebo, vice president of global partner marketing, who declined to discuss the amount of funding Cisco offers to its partners. She attributes the issue to three reasons, the first and major one being that the primary Cisco partner contact is predominantly through the partner's sales organization, "which isn't as proactive in bringing in the marketing organization to give [them] visibility." For example, Cisco offers a "virtual wallet" to partners of all sizes, a tool it uses to have them spend money on both marketing and sales activities. The money is funneled through sales, "and depending on the relationship of the sales team to that marketing team, they may not let them know there's money they could utilize."

As a result, Cisco has started working proactively with its partner marketing teams to make them aware of the virtual wallet and to jointly execute marketing plans, she said. In the past year the vendor has set up a "marketing concierge" program, which is an outreach effort to make sure partners are spending MDFs and to let them know when the funds will expire.

She believes the third issue is one of focus and the fact that partners are putting together multi-vendor solutions and can't concentrate on just one in their marketing efforts. "Clearly they can't spend our marketing funds when they market with other vendors, and they don't have a choice but to let the funds expire," she said.

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Eighty percent of Cisco's business is derived through the channel, which is why the vendor has put a large emphasis on working with its partners, Liebo said.

Presidio Inc., one of the largest solutions providers in the country, is proactive about MDF management; the company develops plans for spending MDFs, said Mike French, chief marketing officer. Like the others, he believes the smaller partners are more challenged when it comes to executing plans, "but I don't think that's a good excuse. … It boils down to distraction." The amount of money smaller partners may be given might not be enough for them to prioritize their resources and cycles to execute a campaign, so they focus on other things that are more important and let the money slip away, he said.

"They have every good intention," French added, but if they don't have the marketing resources, the smaller partners need to be make better use of their sales organizations. He also suggests that they "be honest and realistic about their ability to execute with the vendor and not necessarily take the money. Pass on things that don't fit their business model."

Tips for getting market development funds spent

The ultimate goal for vendors is to get the money spent, but Carr advises partners to make sure it is spent with a good ROI. She suggests that vendors be flexible on how partners can take advantage of MDF money. Doing away with the one-size-fits-all approach in terms of executing a formal campaign, versus using parts of a vendor-orchestrated marketing initiative to augment an existing partner-planned outreach, will make it easier for more partners to participate, she said. "The other key is to provide as much nonjudgmental guidance on how to plan and execute marketing strategies and tactics. Remove the 'FUD' factor for partners that do not naturally have a marketing orientation."

Vendors and partners should both do joint business planning with realistic expectations around marketing goals and then follow-through on both sides to execute the plan, said Rhone. He also cautions partners to bear in mind that "marketing development funds are a benefit, and every benefit comes with an obligation."

French concurred, saying, "There is no such thing as free money."

This was first published in November 2013

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