Turn Marketing Dollars Into Guaranteed Sales Revenue with a cooperative Market Development Program
Words To The Wise™ By David Lamont, Marketingsage
If your customers include resellers, distributors, OEMs, or other business partners that buy and resell your product, you can turn marketing dollars into guaranteed sales revenue with a co-cooperative market development fund (MDF).
Under a cooperative market development program, marketing dollars are awarded to your reseller customers so they can promote your product and their company. A percentage of net sales revenue is typically allocated to your reseller when they purchase a specified amount of product. When the reseller promotes your product they receive a rebate from their allocated market development funds. Your reseller improves their bottom-line because the rebate reduces their marketing costs and funds their own sales programs. Typically these programs have rules that prohibit the resellers from using the rebate to erode market pricing.
Unlike proprietary promotions, a co-operative market development program guarantees a sales return on the marketing investment. The market development fund rebate is paid on the net purchases by the reseller. You have your revenue before you pay out. And the market development funds earned by the reseller are only paid when they run a qualifying promotion.
A very visible example of such a program is Intel’s “Intel Inside” program. When Intel customers like Dell, HP, IBM, Gateway and many others advertise they include the Intel jingle and logo. These advertisements are funded in part by Intel through a market development program.
The sales people benefit by being able to offer an incentive to their reseller customer to meet certain purchasing targets – their sales targets. Here is an example of the sales pitch: “If you buy $100,000 worth of product by the end of the quarter you qualify for a 5% marketing development fund rebate which you can use to help sell the product through to your customers and to promote your own business.”
By encouraging your reseller customers to stretch their purchases so they can qualify for your market development program rebate, you may also be shutting out your competitor. In most cases a reseller will limit their total inventory. If your share of inventory goes up from 50% to 60%, your competitor’s share falls to 40%. Resellers generally focus on selling what they have in inventory.
The sales person also benefits by scheduling quarterly planning meetings with their reseller customer to decide how the earned funds will be spent. You can bet these plans will be sales centric, as the reseller will be focused on selling the inventory through to their customers. This meeting often opens up new selling opportunities and helps strengthen relationships.
Marketing should consider funding such market development programs when these programs are aligned with the awareness generating goals they are tasked to achieve. By channeling promotional funds through reseller customers in the form of a market development program, marketing can significantly amplify its resources. By working with resellers, marketing can generate more awareness and build brand recognition faster. For every dollar you put into co-operative programs you can get more than a dollar’s worth of promotions in return.
Marketing’s resources are amplified because the reseller generally applies some of their own resources to the program. This is especially the case if you require the reseller to match the funding. For example, the company pays 50% of the promotion costs and the reseller pays 50%. Even if your program does not require the reseller or distributor to apply matching funds, the reseller takes on the task of running the promotion. As the number of participating resellers increases so will the number of promotions hitting the market. Most marketing people are aware of the benefits of frequent messages.
Furthermore, significant portions of the funds are never claimed. In the author’s experience, unclaimed funds can be as high as 50%. Most programs have a cut-off date for claims so unclaimed funds can be reused to help generate new revenue and new promotions. The goodwill these programs generate remains even when a reseller does not claim all their funds.
By providing the reseller with artwork, promotional copy and sales tools the marketing department maintains a significant amount of influence over the message. You should also pre-approve all relevant reseller promotions in advance and approve all market development fund claims.
Market development programs and the tighter relationships they foster with your reseller customer also create opportunities for winning more press coverage. Not only can the program be announced to the press but also the peer relationship that is built between your marketing people and the reseller’s marketing people often results in referrals that lead to new publicity opportunities.
In summary, marketing should consider funding sales centric market development programs because these programs:
- Significantly amplify their resources to generate awareness and build the brand. The Intel Inside program is a great example.
- Results are guaranteed so the spending can be justified in a way that is not possible with proprietary promotions.
- Marketing maintains significant control over the marketing message by providing the resellers with ready-to-use tools and by managing the claim approval process.
- The program and resulting peer relationships provide opportunities for additional press coverage.
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