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Much-loathed vendor rebate programs may stage a return this year

Vendor rebate programs are thinning, but still cause the headaches for the channel . Some VARs want them gone; others want vendors to just split the effort of marketing and sales.

Love them or hate them, rebate programs have been part of vendors' channel programs for years.

Resellers often hate them.

A bevy of rebate programs surfaced in 2001 as a way to stimulate stagnant IT sales amid the last recession. And while the payments may have helped a reseller through a bad quarter or two, channel players generally perceive rebate programs to be convoluted and time-consuming.

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"Integrators, in my experience, have thought they are complicated," noted Diamond Lauffin, founder of The Lauffin Group Inc., which advises IT vendors on developing channel programs.

Lauffin specializes in the storage products channel, but Janet Schijns, president and chief executive officer of the JS Group, suggested the same holds true for other IT industry segments. The primary complaint the channel consultant hears from her reseller customers? The amount of time it takes to track the programs.

"They need a full-time administrator just to manage all the rebates," she said.

Reseller frustration with rebate programs has contributed to their decline in recent years, industry executives said. Today, instead of hawking rebates, many vendors now opt for deal registration programs and other reseller perks.

But rebate programs can be rehabilitated, if carefully devised.

"I think that rebate programs are as complicated as the manufacturers -- or distributors -- make them," Lauffin said.

Rebate issues

Rebate programs have largely taken the form of a sales promotion incentive funds (SPIF or SPIFF) or market development funds (MDF). Vendors offer SPIF payments to resellers that sell designated products during a particular promotion period. Resellers accrue MDF dollars based on a percentage of product sales. MDFs are generally earmarked for demand-generation activities such as advertising.

SPIF rebates may involve complex payment formulas. Lincoln said a program may provide five points for reseller a certain product and an additional 3% if its sold in a particular quarter and yet another kicker if it is sold in conjunction with another product.

"We end up spending a lot of our time just trying to figure out the program," said Ashby Lincoln, president of VeriStor Systems Inc., a storage integrator based in Duluth, Ga. "We don't want to get caught in the minutiae of figuring out how we get paid."

Lincoln also objects to the manipulative nature of rebates.

"If you put a goal on me that I have to sell so much of your product before I get paid, you are controlling my behavior," Lincoln said. "The end user loses out. Because at that point my behavior is controlled, my valued-add goes away."

MDF programs have weaknesses as well. One is that MDF dollars must be used within a certain period and don't roll over to the next. Vendors, for the most part, make it the reseller's responsibility to avoid snooze-and-lose penalties.

"Often times, I believe the manufacturers look at the integrator and say, 'Don't you have a marketing person to support this activity?'" Lauffin said.

But smaller integrators may not have the personnel to devote to such a mission, particularly when they maintain relationships with multiple vendors, Lauffin said. "In fact, some of the best integrators in the country are five-man shops," he said. "Most of the time they wear a lot of hats."

Overall, vendors may find the product rebate strategy less tenable as "knowledge" becomes a product throughout the channel, Schjins said.

"As a vendor, your product will become less and less of a factor in the overall sale," she said, adding that professional services and software often comprise more than half of a reseller's project.

Storage: Declining rebates?

Against this backdrop, industry watchers believe the number of IT vendor rebate programs has declined in recent years. Joe Cousins, vice president of storage marketing at distributor Bell Microproducts Inc., thinks that's the case in storage.

"There are probably fewer direct rebate programs to the reseller than there were six years ago," he said.

Instead, Cousins said he sees more interest in channel program features that let resellers get discounts on products they're evaluating, or email access to high-level tech support. Bell Microproducts carries hard disk, DVD/CD, and magneto-optical drives among other storage products.

"That is the direction versus, "If you buy X amount of these products you'll get Y rebate,'" he said. "I think the manufacturers are trying to add more value. I don't think they are investing less in the channel. It's just being invested in different ways."

In the enterprise storage market, storage manufacturers have largely converted to deal registration programs, Lincoln said.

Deal registration initiatives let resellers and integrators bring a pending deal to a manufacturer and receive preferred pricing -- a steeper discount than what a non-registered reseller receives. The idea is prevent rivals after the same account from undercutting the deal-bringing reseller.

Lincoln said deal registration programs also involve vendor support -- participation in joint sales calls, for example.

Lincoln credits Lauffin with "blazing the trail" for opportunity registration programs from his former position as co-founder and senior executive vice president of Nexsan Technologies. Lauffin, who is widely credited as the originator of deal registration as a way to avoid conflict among channel partners, left Nexsan last year to start his own channel management consulting business. Such programs have since become common in the storage industry.

EMC, for example, runs a deal registration program, but also offers co-op dollars through demand-creation programs and rebates.

EMC works with individual partners to establish sales objectives, which will yield a rebate if met or exceeded, according to Pete Koliopoulos, vice president of global channel marketing at EMC. The rebate varies along with the tiers of the channel program, rewarding top-tier partners with the best rate.

EMC offers rebates to partners who join and remain certified in its Authorized Service Networks.

Koliopoulos said the company's approach involves several ways to increase partner margins, including rebates and cost reductions such as the 75% drop in price its technical-architecture training has undergone during the last three years.

Click here to read the rest of this analysis of channel rebates and their future.

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