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Rebates get channel makeover

Vendors retool SPIFs and MDF programs for VARs in the tough economy.

IT vendors have always tweaked the rebate programs for their reseller partners, but the difficult economy has led to a further reshaping.

Traditionally, sales promotion incentive funds (SPIF or SPIFF) involved payments to VARs selling a particular product during a promotion period. Another form of rebate, the market development fund (MDF), lets resellers accrue dollars for demand-generation activities based on a percentage of product sales. MDF money typically had to be used within a given quarter, giving the rebate a use-it-or-lose-it quality.

Resellers have criticized rebate programs as convoluted and unfocused. SPIFs and MDFs still exist, but some manufacturers have taken those programs in different directions. Tighter financial times have contributed to tighter, more targeted channel initiatives.

Impetus for change also comes from new VAR business models. Rebates tied to box pushing won't suit resellers transitioning into managed services. Manufacturers have started to adjust their channel programs accordingly, but they're still working out ways to better engage their partners.

"It's definitely a moving target right now," said Bertha Edington, vice president of marketing at Channel Chargers, a channel marketing firm that works with vendors, VARs and service providers.

MDF revisited

MDF programs are in flux. A vendor's market development fund often presented resellers with an undifferentiated funding bucket. But lately, manufacturers have started linking the money to specific partner business plans and marketing initiatives.

Edington said MDF programs are evolving from the traditional form to case-by-case market development programs.

"A lot of the vendors and manufactures that I work with are moving away from MDFs," she said.

With newer programs, vendors and resellers discuss business plans that detail particular marketing efforts -- an e-mail campaign or a telemarketing program for lead generation, for example. Those become the focus of the MDF program.

John Boyken, president of Channel Chargers, said that approach contrasts with earlier channel practices.

"Manufacturers in the past were a little more willing to throw money at unplanned marketing activities," he said. "Detailing a plan and showing ROI is becoming more important. As the economy changes, so does the approach."

Stratus Technologies, a maker of high-availability servers and software, follows this targeted MDF approach in its new channel program, which debuted October 19. Eric Dougherty, vice president of channel sales at Stratus Technologies, said marketing funds revolve around a partner's business plan, which is updated quarterly. The business plan outlines a go-to-market strategy that could include anything from a cosponsored seminar to direct sales collaboration.

"The business plan gives us a way to focus the money," Dougherty said.

This treatment of MDF is more flexible as well. The vendor isn't limited to an MDF capped at 2% of sales when it seeks to help a high-potential partner. Nor is it obliged to spend a fixed amount of money on a low-potential partner, Dougherty explained.

Working closely with a vendor on a business plan is a new experience for some resellers. NetBR, a solution provider based in Sao Paolo, Brazil, last year became an authorized reseller of Lieberman Software's privileged identity management products. Andre Facciolli, chief technology officer at NetBR, said Lieberman is the first technology vendor he's worked with on a go-to-market plan.

"We approach the market together," he said, noting that the companies are now collaborating on a road show to get the word out on Lieberman's technology.

Jess Richter, Lieberman's director of sales, said the company's biggest challenge at the moment is to build awareness for what he termed a nascent technology. The company's channel initiative, he said, is relatively new and initially focused outside of North America. He said the company aims to tie MDF to specific events.

"We ... assist out partners in developing that brand awareness and technology awareness through special events like trade shows," Richter said.

SPIF makeover

Sales promotion incentive funds and product rebates are getting reworked as well. Deal registration programs, which give resellers preferred pricing on specific sales opportunities, overshadow SPIFs to some degree. This practice potentially provides a much bigger margin lift than rebates on product sales. Deal registration has become very popular, particularly for emerging brands, Boyken noted.

But vendors still offer SPIFs.

At Stratus, Dougherty said SPIFs are effective for starting a relationship with a partner. He said the company offers training, sales activity and product sales incentive SPIFs to partners. The training SPIFs reward partners for completing sales or technical training, while the sales activity SPIF is for resellers that book meetings with Stratus sales prospects.

The SPIF plan aims to compensate partner sales reps and technical reps "for taking the time to learn about out solutions," Dougherty said.

Hewlett-Packard Co., meanwhile, is wrapping some of its rebates around solutions as part of its recently revamped PartnerONE program. For example, partners with the Converged Infrastructure Elite designation earn a rebate on servers, storage, networking, software and services when they sell data center solutions spanning HP's portfolio, according to Matt Smith, marketing director for HP's Americas Solutions Partner Organization. Converged Infrastructure Elite partners also qualify for an additional 2% discount just for holding that designation.

HP also streamlined its deal registration process to "reduce the number of clicks" to cash, Smith noted. In addition, the company offers its preferred- and elite-level partners a $2,500 quarterly marketing subsidy. Partners can spend those dollars at HP's marketing subsidy center, which offers a range of demand-generation tools including end-user ad campaigns and newsletters.

But even refined rebates can fall short for partners that aren't built around product sales -- managed services providers, for instance.

"The challenge is that those programs are very much geared toward people who sell hardware on a regular basis," said Dave Sobel, chief executive officer of Evolve Technologies, a Fairfax, Va., company that provides outsourced IT services and cloud services. "If you are a services firm, a lot of those programs don't match particularly well."

Instead of reselling boxes, service providers acquire hardware to provide an ongoing service. They typically bill customers monthly for services. Given that business model, Sobel said he looks for vendor program features that let service providers lease or rent hardware, rather than pay for it upfront.

The takeaway: As much as vendors have retooled channel programs, additional changes could be forthcoming.

John Moore is a Syracuse, N.Y.-based freelance writer, reachable at

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