Channel data management system providers and industry observers believe vendors are overpaying their reseller and distributor partners because they can't capture solid sales data.
Earlier this fall, channel management software provider Zyme claimed that lack of accurate sales data meant several vendors were overpaying their channel partners by as much as 30%. "They are paying out without accurate data to the best of their knowledge because of spreadsheets sitting out there,'' which could result in either erroneous computation or payment of incentives, or an inability to validate partner-generated claims against accurate sales transaction data, said Mukund Ramaratnam, vice president of strategic sales at Zyme.
Specifically, Ramaratnam maintained that vendors are overpaying in rebate programs, price-protection programs, and deal registration or special price authorization programs. Another area where he believes incentive calculation errors tend to be made is in "stacked" or "overlapping" programs where a partner may or may not get credit for multiple programs for the same transaction. He added that it is not the partners' fault. Instead, the problem falls on manufacturers that haven't invested in a channel data management system. Channel data management systems are an emerging category, according to Zyme, and some two-thirds of manufacturers are not using an off-the-shelf platform.
Diane Krakora, CEO of channel consulting company PartnerPath, concurred it is a "valid claim" that some vendors are overpaying partners - but specifically in rebate programs. Echoing Ramaratnam, she said, "Rebate programs are typically structured around meeting specific revenue numbers. … Without good data and insight, it is very difficult for the vendor to reconcile the sales figures they have from the partner with the sell-through distribution or even sales data in their own ERP systems."
Krakora does not believe vendors are overpaying on general discount or deal registration incentives and discounts at the time of sale. That said, "It's still a lot of money. … However, I don't think the partners [provide false sales data] maliciously. I believe most individuals and … companies strive to be fair and honest. I think this is just mistakes in data and reporting."
Sales and marketing support are other areas where vendors are spending haphazardly. The channel on average is "very, very bad at sales and marketing,'' observed Terry Hedden, CEO of IT sales and marketing company Marketopia. "They are good at selling to existing customers - but bad at selling to other customers."
Vendors invest a great deal of money to generate demand for resellers - which is the right thing to do - but the way they are doing it is wrong, he added. "Resellers are very often not skilled in marketing or demand generation and thus waste a great deal of money and fail to produce a defined ROI (return on investment) for the vendors."
According to Accenture, partners struggle to make their incentive spending more effective and improve ROI due to increased program complexity, decentralized accountability and infrastructure limitations due to issues including ad hoc collection, use of point-of-sale data and insufficient investment in analytics that are key to optimizing spend.
Channel data management: What vendors expect from partners
Vendors are typically looking for data on how much of a product was sold, to whom and where, which is not unreasonable but isn't easy to capture, particularly when a solution provider might sell products from 100 different vendors, Krakora said. "That's a lot of administration time." The vendors' systems - meaning partner portals, deal registration, and rebate and rewards systems - "can and should all be tied together to get the vendor and the partner better visibility into the data. I don't think the partners want to be wrong with their data. It's just the nature of [having] a lot of data and a lot of moving parts and not great databases."
Channel data management systems like Zyme have automated capabilities to do data validation, Ramaratnam said. The data is presented "in pristine form so manufacturers can make decisions about sales execution" and gain visibility into areas including why something isn't selling and where there is too much inventory. "Everything is connected to the idea of, 'Do we know what's actually happening in the channel?'" he said. Other providers of channel management systems include Entomo, Channeltivity and Optimus EMR.
In general, vendors try to obtain ROI metrics either in cost per lead or cost per sale, Hedden said. Channel partners are under pressure to produce results reporting both internally and within 90 days to the vendor. However, often the sales "aren't there in 90 days and resellers aren't very good at marketing and reporting," he said. A lot of partners lack an interface from their internal reporting systems to their CRM system so they're depending on manual reporting, he noted.
Where the vendor-partner relationship stands today
In terms of marketing, what channel partners need to do is become less dependent on vendors and take on the responsibility of doing their own marketing, Hedden said. That isn't an easy task.
"The industry has for so long been dependent on the vendor to provide the marketing budget" because resellers and value-added resellers "have zero for marketing budgets,'' he said. "It is to the point where, frankly, it's like an addiction in the industry. If a vendor all of a sudden cut off [its] marketing budget, resellers would be struggling, because they have zero form of lead generation." In the meantime, he said, "resellers are going to take advantage [of vendor marketing resources] as long as they can."
Vendors today realize that they need to reallocate some of the capital they give to resellers to marketing firms that will enable channel partners to be more successful - in effect "teach them how to fish," he said.
But vendors want to "keep the peace," he emphasized, since it is difficult to get accurate data.
While there is always channel conflict, Krakora noted, "the vendor/partner relationship is in good standing these days" and has come a long way from the issues that existed in the early 2000s.
"The lines of communication are open with partner conferences and partner advisory boards,'' she said. "Partners get more access to information more quickly through partner portals. Overall, the rules of engagement have been defined and are being improved and enhanced."