Beating Up On Market Development Funds
The talk around market development funds and how they are best used has been a point of discussion in this industry for decades. Like everything else, some vendors and strategic service providers do better than others at managing and using the soft dollars to benefit future sales.
With the pace of change in the market and the need to cut costs and drive revenue, MDF scrutiny is going to increase. But MDF is unique in that cutting the tool usually means reduced sales in the long run and more profit in the short run.
Smart vendors, if they play it right, can get more out of their MDF and reduce the amount floated in the market. It's not easy to do and, because it takes time to get there, it's not something most suppliers have the gumption to pull off.
It would be in the industry's best interest if we made the shift to well-executed, measured and successful MDF because it would force channel partners and vendors alike to get very serious about how they spend the dollars.
First and foremost, strategic service providers need to admit MDF is there to drive more revenue for them and the supplier that is providing the funding. Vendors have a right and an obligation to their shareholders to scrutinize whether the spend has real benefit to both sides. Most importantly, strategic service providers must understand MDF is a marketing tool that should lead to sales — it's not a sales slush fund for schmoozing.
It's not always easy to determine how these funds are viewed. On the partner side, there are lots of companies that view them as a way to boost the bottom line by running ’marketing programs’ that are really designed to cover internal costs and drop excess dollars to the bottom line. When a marketing department's goal is to be a profit center rather than a cost center, it's not pushing to get a sales return on the spend. It's looking for cash.
Vendors that look at MDF as a true future sales generator must sign up for the hard work of putting systems in place to force channel partners to execute properly. That puts pressure on the internal and external teams and is no doubt controversial.
It takes a very strong management team to hold the tiller straight and not deviate from the goal of setting a course of only using MDF in ways that will drive future sales. Partners and internal sales alike are bound to complain and ratchet up pressure to relax how the dollars are spent.
It's always hard to stand your ground, but it's also the only way to force real change.
MDF is going to be increasingly scrutinized in the future, and partners and vendors that don't commit to truly changing how they execute and set the right objective are merely going to see the cutting of funding — and not the sales growth. There is a lot of money in this MDF world that is not well spent, but there is plenty of money to get the desired results. It's a lot like the federal government claiming $3 trillion isn't enough to get the job done but never looking at cutting poorly spent funding.
There are a few vendors, Hewlett Packard Enterprise being the most notable one, that are doing exceptional work in this area, and will drive more sales for its partners and itself going forward. But there is a lot of improvement to be made in the industry overall.
Partners and suppliers that commit to setting the right goal of driving long-term sales and scrutinizing poorly spent MDF in favor of programs that work will benefit by getting the lion's share of the sales in this market, and that's never a bad thing.
BACKTALK: Make something happen. Robert Faletra is CEO of The Channel Company. You can contact him via email at [email protected].