Sun's New Market-Funds Strategy Based On ROI

In his 15 years at Sun Microsystems, director of U.S. Partner Programs Bill Cate always remembered the Sun Market Advantage program that provided market development funds (MDFs) to VARs and distributors. But in 2005, the company replaced it with Go To Market funds. Instead of partners accruing war chests based on their dollar sales, now they must present a marketing plan and convince Sun to fund it.

Adjusting to the change "wasn't a pleasant experience," Cate says. "It's still pretty bloody. The channel doesn't like change unless they know how it's going to affect them, and I don't blame them."

This experience isn't unique to those working with Sun Microsystems. During the past few years, there's been a movement among many vendors to request proof of ROI for the marketing funds they provide and to encourage a focus on specific markets and opportunities. And that's causing many distributors and VARs to readjust their expectations and find new ways to get these vital funds.

"I think vendors are becoming much smarter with their marketing," says Dan Schwab, vice president of marketing at distributor D&H. "Many of them [realized] that a lot of their largest distributors, although good fulfillment partners, lacked the ability to create demand. [Now] they're spending the same amount or more money but [are] very targeted."

"We've held the baseline amount of marketing dollars pretty steady," says David Allen, distribution sales manager for Intel in North America. He notes that funding for some of the chip maker's distributors has decreased as Intel has tried to focus on such areas as the digital home and unbranded notebooks. "You don't get dollars for just showing up," Allen says. "You have to have a focused competency, and then you have to deliver." With the new approach, there's a mix of winners and losers among distributors both large and small.

The reason distributor funds should be of interest to VARs is that the distributors often act as secondary sources of marketing funds to supplement what resellers get directly from vendors.

Keith Norbie, business solutions manager at Plymouth, Minn.-based Nexus Information Systems, says that his company has, at times, benefited from the two sources. For example, funds from EMC have let this storage-focused VAR bring an important client to the EMC Technology Summit in New Orleans--and generate more than $1.6 million in business as a result. But the money from EMC often isn't enough, so Nexus works with Arrow ECS, which has provided funding, to help "pick up the slack."

Because of the vendor interest in specific market segments or types of activities, many distributors--and their VARs--are finding that what once was a flow of money is now more like a trickle now.

Richard Duong, marketing coordinator at City of Industry, Calif.-based Max Group, says, "For the majority of our vendors, [MDF funds have] reduced steadily. However, there are a couple that did surprise us and their [MDF] budgets are cut significantly, even though our sales may be the same as in previous years." And when vendors cut MDF funds, distributors, especially smaller ones, may not have the budget to promote the products they once did.

While vendor interest in quantifiable ROI on marketing spending is understandable, some distributors say that finding obvious causality can be virtually impossible with long lead times.

"In this business, where you're trying to solve a customer's business problems with complex technology solutions, there's a very significant investment well in advance of where you will recognize revenue," says Eileen Gibson, vice president of marketing at Avnet Technology Solutions. So a final sale may not seem to be connected to the total marketing a distributor has done with solution providers.

To keep the tap of marketing funds open, distributors and VARs will have to manage a split focus: part on the needs of the customer, and part on the desires of the vendors.

"The VARs need to clearly understand the requirements of their end-user segmented customer," says Bob O'Malley, Tech Data senior vice president of marketing. "But they also need to understand the plans and capabilities of the distributors and the manufacturers."

Ironically, the shift to vendors' market interests, which are more specific, could force resellers to be less focused on their own customers, who may not be in hot, new areas. That could cause a significant disruption in the entire chain.

"The distributors [and VARs] built their models based on the rules of engagement that the suppliers set out," says Janet Waxman, IDC's vice president of hardware channels and alliances. "You can't suddenly dictate to the partners in this business that the rules have changed. Recognize that's a significant shift in my business. I'm playing pin the tail on the donkey, and the donkey has moved to a new zip code."