Partners provide scale, reach into markets that would otherwise be difficult to reach, and can enhance the value of the company’s offering. Properly managed, a company’s partner channel can provide to 100% of a company’s sales capacity. Yet, a recent survey of 600 sales and marketing leaders at the CEB Marketing Leadership Council’s Annual Sales, Marketing & Communications Summit found that only 27 % were satisfied with their Channel Partner relationships. Additionally, in most companies, greater than 75% of the investment in the partner channel is through partner programs and incentives (IPED Channel research: IT Vendor Benchmark, March, 2013). When one looks at these two empirical facts together, it’s clear that partner programs put in place to manage and create incentive for partners are not perceived as effective.
According to research from IDC and Hawkeye, companies are spending up to $50B annually in North America alone on their partner programs. What’s going on? How do companies allow this to happen? There are two main reasons:
- The partner program becomes misaligned with the company’s goals and objectives for the partner community.
- Companies find it difficult to continually update and change their incentive programs due to the short term consequence it may have on the partner channel as a whole.
In addressing the first reason, it’s important to note that no company sets out to create incentive programs that are misaligned with their partner strategy. The fact is, however, that partner strategies change over time. This can be due to market conditions which change the role that the partner needs to play in the overall strategy. For instance, in the technology industry the move to cloud computing is severely changing the role of partners from a traditional selling and fulfillment function to providing add-on services or solutions. Internal factors also can impact the partner strategy. An example of this happens when companies decide that they need to drive a particular area of business themselves rather than relying on partners.
To address the second reason, established companies in particular have a significant amount of revenue running through the partner channel. The fear of disruption caused by partners’ compensation often creates a situation where companies are hesitant to change their program to adapt to new market or company realities. An often heard example is a company’s desire to change the incentives to provide more for developing new business vs. managing existing business. Even if this mechanism is currently in place, any disruption to the current program has the potential to alter the partner’s value proposition, which may in turn lead to lowering partner loyalty and finally a loss of existing business. In contrast to internal sales compensation incentive programs, the company holds significantly less leverage and control over their partner community, who in many cases may simply choose to sell and service other vendor’s products.
What should companies do? Foundationally, the answer lies in continually determining the company’s strategic goals and objectives that the company expects from the partner community. The goals should be clear and designate the selling, service or value-add objectives for partners within each customer segment that the company sells to. Clearly articulating the objectives both internally and with the partner community is the key to setting the stage for a positive end result.
However, in order to ensure proper return on the high investment in program dollars, companies must not veer away from adapting their partner programs accordingly. Instead companies need to take the following steps:
- Assess their channel incentive programs annually and look for opportunities to better align incentive dollars with the most important objectives.
- Once the partner objectives are clearly defined, identify the specific changes (adding monies to specific components, taking away from others) that align the incentives with the desired objectives.
- Assess how the new program will impact existing partners, and if necessary determine a transition strategy that allows desired partners to adapt to the new program seamlessly.
- Continually communicate with the partner community and be clear and concise on both the company’s strategy , and how they the partners can align their business models to be most successful.
Done well, an updated partner program is never a surprise , and has both the company’s and the partner’s objectives in mind. Learn more about The Alexander Group’s services.