Co-op marketing funding is one of the great industry mysteries.
Large manufacturers say that it increases the amount of cash they make available to resellers via distribution. But distributors' views on co-op marketing funding are mixed. Many agree it is a good idea and that when used correctly, it can be the best way of getting funds through to deserving resellers - those that have imaginative marketing ideas. Distributors get cash from manufacturers and hand it out to those resellers with the best ideas for increasing sales.
According to distributors, the problem is that some manufacturers have decided co-op funds are not a good way to get cash through to dealers. Some claim the funds are being abused by dealers that use them for hospitality, rather than for boosting sales.
Small dealers are more sceptical about the funds. 'We have never got a penny in co-op marketing funds,' says Ian Selvan, MD of central London dealer Centrepoint Software. 'I almost don't believe they exist.'
For the past four years, Selvan has badgered his distributors to fund marketing campaigns, but the only time Centrepoint ever received funding was when it approached suppliers, including Microsoft and IBM, direct.
Both stumped up cash for targeted marketing campaigns based on local radio adverts.
Distributors, says Selvan, are more likely to spend manufacturers' co-op funding on producing glossy in-house brochures to deluge dealers.
'I wonder how much they actually increase sales?'
The answer may be, not much, which is the main shortfall of co-op funding.
Every aspect of the manufacturer/ distribution/dealer chain can complain that the cash is not filtering to where it is needed.
This confusion is backed up by the findings of a recent Global Touch survey, which states that vendors were not sure how much involvement they should have in channel financing. The survey found that 58 per cent of distributors and 44 per cent of vendors felt their dealers lacked adequate funding.
Joe Hemani, CEO at distributor Westcoast, says manufacturers should not be critical of the idea of co-op funding, but should take a long-term view of what they are likely to achieve. 'Co-op marketing funds have always been a good idea,' says Hemani, 'but they are heavily dependent on the individual manufacturer and what it is trying to achieve.' Manufacturers should try to use the money to generate staff interest and product training, says Hemani, and sales will eventually come.
Hemani approves of the way Hewlett Packard and Digital spend their co-op funding, but believes some of the other manufacturers are too demanding.
'Manufacturers shouldn't expect co-op marketing to result directly in a string of leads and generation of sales,' he says.
A PENNY FOR YOUR THOUGHTS
'The product pull needs to come from manufacturers, not dealers or distributors,' Hemani says. 'If co-op funding is limited to educating dealers, providing product demos and helping to generate sales, then it can continue. But two things are likely to stop it; manufacturers that expect too much, or take a short-term view.'
Some manufacturers, such as personal finance specialist Intuit, disagree and see a link between co-op marketing funds that are awarded and dealer feedback. Intuit MD Ian Yarlott says manufacturers are inundated with requests for cash for reseller marketing activities and that a successful dealer should give the company a way to measure the success of its marketing.
Yarlott is keen on getting sell-through figures from dealers during the period of any co-op marketing venture. This would show what the dealer was selling before, what improvement it made through any particular marketing venture and what the sell-through figures are for rival products from companies such as Sage and Microsoft.
This could raise a potential problem for the dealer, but at the same time it helps marketing funds get through to resellers that are prepared to do something with them.
The other advantage a dealer could get through close involvement with sell-through figures is to convince manufacturers of the importance of getting cash to imaginative resellers rather than just volume dealers.
It has been the smaller dealer's bone of contention that larger brethren are rewarded for volume rather than imagination.
PASS THE BUCK
Alex Merryfield, marketing manager at Intuit, believes manufacturers that want to work closely with resellers on co-op funding should ask them which marketing activity works best and not try to dictate what it should do. 'Resellers know what works for them. They know how to get sell-through.
We don't want to invent a sales programme for them,' he says.
Merryfield believes co-op marketing funding gets confusing and diffused when filtered through distribution. 'We try to keep distributors out of our co-op marketing and deal direct with resellers,' he says. 'It's the best way for us to get the cash through to the dealers and for us to see who really has good ideas for marketing.'
Creative Labs distribution manager Julia Duthie admits there is no magic formula for getting the right amount of co-op funding to where it is needed in the channel, but thinks it is down to getting a sensible balance between the needs of all the parties involved. 'The notion of co-op funding should mean that both manufacturers and distributors are investing cash,' she says. In practice, the original plan of distributors matching funding has fallen away and manufacturers are expected to come up with all the cash.
PENNIES FROM HEAVEN
Most manufacturers give distributors a fixed percentage of marketing funds based on the volume of the product they take. Regardless of how much funding they get, says Duthie, there is the risk of conflict between distributors and vendors. 'Both want cash to promote their own brands,' she says. 'There is a tendency for distributors to put the money into packs that focus on themselves and their services and not as much on product.' The larger the distributor, the more blurred the edges between promoting product and promoting themselves become.
Like Intuit, Creative Labs negotiates with resellers that want funds for a particular marketing activity and feel they are not getting cash from distributors. The key question is whether resellers should expect to get a percentage of cash that manufacturers supply to distributors.
Duthie says they should, and says she always encourages distributors to push cash down the channel to the resellers. But any funding that does trickle down does so haphazardly - some resellers get lucky, others don't.
Creative Labs would like more direct contact with its resellers, says Duthie, but there would be obvious problems in managing and tracking so many relationships. The other problem that arises, she says, is that some dealers want cash for mundane marketing such as advertising, and are often not keen to make additional stock commitments to get the cash. 'The best way to impress a manufacturer is to have imaginative programmes that allow it to document results.' Like Intuit, this means sell-through figures.
'Ultimately,' Duthie concludes, 'the notion of funding within the channel needs to be shaken up. It's top-heavy, with lots of expense at the distribution level. This cash needs to be pushed down to the resellers.' The trouble is, many resellers won't give up the cash - which they see as rightfully theirs - without a struggle and a lot of pressure from manufacturers.
YOU SCRATCH MY BACK ...
Mike Briercliffe, MD of Leeds-based reseller Graham Technology says that another problem with co-op funding is getting it in large enough sums to be able to put it to good use. Briercliffe, former marketing director at distributor CST Lynxserv and still a consultant there, says the best way for a distributor to help resellers is to collect a reasonable sum of manufacturer money for a campaign (say u10,000) and then to involve as many complementary resellers as possible.
'Co-op marketing funds have not dried up,' he says. 'IBM and other manufacturers always have some in their coffers, but resellers treat it like a slush fund.' For too long resellers have expected co-op funding to be doled out to them as a two per cent bonus on their bottom line, says Briercliffe, but manufacturers have wised up.
'It's not so simple for resellers any more. Manufacturers have the cash, but want something in return.' That something is an indication that the money is getting sales that wouldn't otherwise be obtained.
Merisel marketing director Venetia Edney-Ball says the confusion over co-op marketing funds is caused by their ambiguous nature. In the first place, the funds are earned by distributors on what they buy from manufacturers.
The secondary function is to put incentives in place to develop reseller sales, but the two things do not necessarily flow naturally from each other. Edney-Ball says resellers need to have good marketing proposals and must commit to volume if they are to successfully pitch for funds.
Merisel has launched a dealer loyalty programme to encourage resellers that are committed to the distributor when it comes to purchasing. Under the scheme, loyal resellers are first in the queue for funding. Overall, Edney-Ball agrees the availability of manufacturer co-op marketing funds is shrinking. 'They are looking closely at where money is spent and trying to decide whether it is effective.' This puts pressure on the distributor to get the funds in the first place.
I'LL SCRATCH YOURS
Edney-Ball says that in programmes such as the IBM partnership, Merisel is one of the few distributors that actually pushes the funding it gets down the channel to resellers. 'Many distributors hold on to the funds, but we see it as a way of rewarding resellers.' The dealers that do not get funding, she says, are those that carry on mundane marketing and only contact the distributor for product every six months or so.
There is a strong manufacturer view, typified by Microsoft, that co-op funding is purely for distributors. This avoids the confusion of resellers getting annoyed because they think they are not getting something they are entitled to.
Microsoft distribution sales manager Geoff Wright says it pays all of its seven distributors a standard percentage for marketing based on sales.
'It is about our relationship with them,' he says, 'not their relationship with resellers.'
But the funds do indirectly benefit the resellers by allowing them to work with distributors on product launches. But Wright says he'd rather see 'good service from the distributor drift down to the reseller rather than just funding'.
Although resellers would rather have the money, at least Microsoft's approach to funding stops any aspect of the channel from claiming that co-op marketing funds don't work. The buck clearly stops with the distributors.
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