Channel marketing ROI big hurdle for marketers

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B-to-b marketers that rely on channel partners to sell their products are struggling to improve the ways they measure ROI on their channel marketing investments.

"It is incredibly difficult," said Martyn Etherington, VP-marketing at Tektronix, which manufactures network test equipment and derives 40% of its revenue from channel partners. "It is probably the marketing nirvana that has been missing."

He's not the only one who thinks so. According to a September study from research firm IDC, a huge gap exists between tech marketers' current state of measuring ROI on their channel marketing investments and their desired state of measurement.

When asked to rank their current ability to measure their marketing investments, programs and messaging with channel partners on a scale of 1 to 6, the average score was 2.8. When asked to rank where they'd like to be in 18 months, the average response was 4.7.

The IDC 2007 Tech Marketing Benchmarks report was based on an online survey of 99 senior marketers at technology companies.

"There is a huge gap. People need to get a handle on their channel investments," said Michael Gerard, research director of IDC's CMO Advisory Practice.

"They need to understand how much they're investing overall into their channels, where it's being spent and what is the return they're getting in the channels."

But that's not so easy.

"Fundamentally, the challenge is that the channel partner has more information than the product marketer on who's buying the product, what price the buyer is paying and what level of satisfaction the buyer is actually getting," said Pat LaPointe, managing partner at MarketingNPV, a marketing measurement advisory firm.

"One of the value levers the channel partner holds is the value of the information. The channel partner doesn't want to give too much power to the marketer, because the marketer may squeeze the channel partner out of the role they play in earning a profit."

LaPointe said the difficulty in measuring ROI is not in measuring the load-in (what the marketer sells to the channel partner), but in measuring the sell-through (what the channel partner sells). However, he said, successful marketers can find ways to work with their channel partners to more effectively measure ROI, such as creating an incentive structure based on sharing certain information, such as the buyer's ZIP code and annual sales, without sharing customer names.

"Marketers can work on getting alignment with distributors to share information on a semiblind basis," LaPointe said. "I see a lot of marketing organizations now thinking about going down that path."

Product marketers can also conduct third-party research to find out what products customers purchased, where they purchased them, what they paid and other information, he said.

New strategies

Despite the challenges, marketers are devising new strategies for measuring ROI on their channel marketing programs.

"We work with our channel partners to produce outcome-based plans on outcomes we want to drive and activities to drive those outcomes," said Tektronix's Etherington. "That is a big departure from the way it used to be done, where we would bankroll our channel partners' programs without really sitting down and scrutinizing our plans and reviewing them afterward."

Tektronix has two sources of funding for its channel partners—co-op funds, which are matched by the partners, and marketing development funds, which are based on the marketing opportunity in the channel.

"We focus 80% of our resources on the 20% of partners who generate 80% of orders," Etherington said. "It's all about paying for performance and making sure we apply our resources to support those partners who generate the most revenue."

For the marketing development fund, he said, "We look at what it is we're trying to achieve and how we can best achieve it. It is critical we know what we're driving in our partners' business."

For example, Tektronix defines the results it wants from its channel partners upfront, such as leads. "We put a bounded condition around it, such as what constitutes a lead, what should the cost of a lead be and what mechanisms should drive that," Etherington said.

It then conducts quarterly reviews with its channel partners to track how they're doing on delivering outcomes. "We have a number of partners who are very open with us and are extremely transparent in the interest of continued improvement," Etherington said.

High-tech marketers aren't the only ones struggling with measuring ROI on channel marketing.

Distribution hinders metrics

Mike Saad, global e-marketing manager at Armstrong World Industries, a flooring, ceiling and cabinet manufacturer, said proving ROI on channel marketing is particularly difficult because of the company's two-step distribution process. In many cases, it sells through distributors, which in turn sell to retail stores.

"We have noticed that there is a significant opportunity for ROI through the relationships that our salespeople have with retail customers based on the retailer's showroom floor. By doing more and better things for our retailers, they will give us more space in their showroom and improved mind share of their salespeople," Saad said.

For example, Armstrong learned through research that it needed to improve customer service in retail stores selling its products. After implementing a program to do so, it noticed an increase in calls from customers who had purchased products from retail stores.

"We don't have concrete metrics in place, but the next step is a full-featured lead management program with components that will allow us to arrive at some kind of ROI," Saad said.

Armstrong is also doing more online to support its channel partners, such as running local search marketing programs on behalf of its retailers in some markets.

Intel Corp., which relies almost exclusively on channel partners to sell its products, is moving more of its marketing spending online, and it expects its channel partners to do the same.

Beginning in January, it will require its channel partners to spend 35% of their "Intel Inside" marketing development funds on online marketing.

"As customers purchase processors from Intel, or through distributors, they accrue a percentage of sales into a marketing development fund," said Rob Rollinger, worldwide online marketing manager at Intel. He declined to give the percentage, although he said it is in the single digits.

"[Channel partners] can use those marketing development fund dollars based on our terms or conditions. For example, they can place an ad and follow our messaging guidelines, then submit a claim for reimbursement."

The requirement to spend 35% of those funds online was driven by research showing that more customers are making purchase decisions based on information they find online, Rollinger said.

"ROI is challenging in a co- marketing environment," he said. "We may not have the same access to data. For example, getting sales-out information is always a challenge."

However, he said that requiring channel partners to use online marketing helps Intel monitor real-time performance.

"We used to survey the audience, run a print ad, resurvey the audience and see if we moved the needle," he said. "With online, we can measure effectiveness on an hourly or minute-by-minute basis."

Development fund support

Xerox Corp. uses a proposal-based marketing development fund program to provide channel partners with marketing support.

"A proposal-based program fosters collaboration with that partner," said Tom Gall, value channel marketing manager at Xerox.

Under the program, partners propose a marketing plan to their Xerox account rep and earn a percentage of sales.

"In terms of measuring ROI, we ask our reseller reps to provide quarterly marketing plans. We know their volume and what they're selling. We are more concerned with their commitment to us," Gall said.

However, he added, "It is hard to create a one-to-one relationship between dollars you spend and revenue you get."

For example, Xerox may provide marketing development funds for a reseller to hold an event to train IT managers on Xerox products.

"Sometimes the sales cycles are long," Gall said. "It's hard to determine if that event generated revenue."

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