Think Co-Op and MDF First: The Five Forces of Partner Captivity - Part 2

September 30, 2016 Jared Shusterman

 

EXECUTIVE SUMMARY: 

This article explores the five forces of Partner Captivity and how differing interests between Brands and Partners can create misalignment. Find out how to better align your advertising with your Channel Sales goals:

  • Learn about the five forces of Partner Captivity.
  • Discover why non-captive Partners need incentives to force alignment to the Brand’s goals.
  • Understand the main arguments for creating a Co-Operative incentive program.  

Read Part 1:
Think Co-Op and MDF First: Why Funding Strategy is Crucial to Channel Success

***

Most business MBAs use Michael Porter’s five forces framework to think about business strategy. Similarly, when we think about funding strategy, we apply our own version of a five forces model to determine “Partner Captivity.”

At SproutLoud, we tell Brands that the less control they have over how their Partners advertise, the more “non-captive” the Partners are. This means that unless you influence how they should advertise, Partners are going to do what (they think) is best for them.

Let’s look at each “force” to determine your Partners’ independence in their marketing decision making, and why it matters with respect to your Brand funding strategy.

Force 1:
The Partner’s Brand is Different than Yours 

If your Partners have their own Brands, that’s the biggest indication you have non-captive Partners, meaning the name and/or logo of their businesses are different than your Brand’s.

The tools you may have in place for them most likely push your Brand and creative requirements, not those of your Partners. As a rule of thumb, your tools are going to be much more Brand-management focused to fit your needs. This means your Brand tools are more restrictive on the creative your Channel Partner can build and put into market.

Without funding, Partners are generally better off choosing from among the hundreds of marketing tools already on the market. Typically, these are tools with easy-to-use WYSIWYG editors to build the creative they want. Larger Partners may opt to use their own agencies or in-house team to create their own vision of what will generate demand.

As entrepreneurs, your Partners believe their own Brand, their colors, their local name and local representation are all more important than yours. You can count on that.

Generally, we say the percentage of creative control Partners expect to have over an asset, tactic or campaign directly correlates to the percentage they’re paying for it. If your Brand isn’t contributing anything, and your Partners are paying 100 percent out of pocket, then this equates to giving your Partners 100 percent creative control. And Brand tools don’t allow Partners to have that level of control over the creative or program rules.

If your Brand doesn’t fund the advertising that your Brand’s tools facilitate, then you might as well not fund the tools. Save yourself the money.

If you already provide tools and systems for your Partners, but you don’t offer any funding, chances are you handle an absurd amount of requests for creative changes without the monetary foundation to say "no."

Force 2: 
Your Partners Sell Your Competitors’ Products

If your Partners sell competitor products, or other products in general, then they have greater discretion on what they want to advertise. 

Let’s say you decide to launch a Facebook advertising program for your Partners. You build the campaign assets, contract with a vendor and launch the program to the Channel. After substantial investment of time and money, you’re disappointed by a lack of participation from your Partner network.

This may be a result of incentives competing for Partner mindshare. 

For example, your Partners may have other programs with other Brands who believe it’s their responsibility to nurture their Channel Partners. This means they’re providing tools and contributing funds, by cooperatively investing in local marketing activities. Also, other Brands may be offering a higher contribution margin on their products than your Brand offers. 

Disadvantageous funding for Partner programs compared to other OEMs and inferior contribution margins are strong factors that can cause Partner participation to suffer.    

Force 3:
Your Brand is More Reliant on a Push Strategy

Based on the flow of promotions from the Brand to end-consumers, two core strategies exist: Push and Pull. Pull refers to a strategy of generating end-users’ interest in such a compelling way that they demand these items and “Pull” them from Channel Partners. Push refers to demand-creation by incentivizing Channel Partners, who in turn “Push” the product downstream to end-consumers.

Push and Pull strategies often co-exist. But when Brand equity is weak, distribution is highly fragmented in disparate markets, or incentives to create Pull are too costly, then a Push strategy often emerges. 

One thing is for certain though — Push strategies shift power to Channel Partners and put them more in control. And although slotting or stocking allowance incentives work for some industries, these don’t impact the full customer journey; therefore, co-operative advertising becomes critical.

Force 4:
Partner Services the Customer Post Purchase

When Partners service the customer post-purchase, as is the case for the auto and medical device industries, Partners continue to play an important role in maximizing the lifetime value of the customer and become a Brand advocate to other potential customers.

If it’s left to a Partner’s discretion, then customer-retention strategy, especially for mom-and-pop shops, can be non-existent. 

Brands must pay for both the tools to reach customers and the activities that help keep those customers happy. 

Force 5:
Partners Have Their Own Marketing Teams

Remember that Partners run their own businesses. And many of smaller Partners own their own business. 

Some Partners have enough resources to own their own marketing initiatives, invest in their own marketing stacks and create their own marketing strategies. This investment indicates that they have their own ideas on how to market their business and achieve their sales goals — which means they need less support from your Brand to support sell-through. 

One of the primary problems I hear about from Brands is that some Partners are “a little too independent.” Whether they are running a program like the one the Brand is offering or not, they still have an opinion on how to make it better. These types of requests to change a program not only slow execution in the field, but they also create a lot of unnecessary work for the Brand team. Of course, if you don’t accommodate your Partners’ requests, they may just opt not to participate.  

Without funding from the Brand, there is no incentive to drive Partner participation in a program — especially if your Partners believe they have better ways to drive results. This creates a problem when the Partner and their business has strong influence over the customer. As a result, your Brand’s ability to impact the customer journey, through your Partner, is impaired.  

No Funding? Change Your Way of Thinking

Even if Partners seem enthusiastic about the tools and programs your Brand has created for them, getting them to invest in Brand programs is the real measure of success. Again and again, I hear Partners say that they have to be incredibly careful about how they spend marketing dollars. For many Partners, the money they invest in a campaign often comes directly from their operating funds. This means that they are literally gambling on marketing programs with the money they would otherwise use to pay themselves. 

Now it’s possible that some tactics, such as funding organic SEO or online visibility, may not make sense for Brand funding. But certainly tactics that are directly tied to promotions, or the customer journey, are worth investment. 

Regardless of the funding mechanism your Brand chooses, this much should be clear: Funding the content your Partners get into market is the best way to engage Partners and create demand through the Channel. 

Learn how to amplify the power of your marketing spend.

 

About the Author

Jared Shusterman

Jared is the Chief Executive Officer of SproutLoud. Since 2006, he has been primarily responsible for strategic direction of the Company, as well as the oversight of SproutLoud's Partner ecosystem. Prior to SproutLoud, Jared worked in Thomas Weisel Partner’s internet and online advertising investment banking practice in San Francisco. He served as the lead analyst on a number of Corporate Finance and M&A deals including Newscorps’ buyout of Intermix Media (Myspace.com). Jared graduated with a B.A. in Finance and Marketing from the McIntire School of Commerce at the University of Virginia. Jared has an MBA from the Kellogg School of Management at Northwestern University and is a member of the Young President's Organization (YPO). Jared has been honored as one of the Top 40 Under 40 Entrepreneurs by South Florida Business Journal and a Top 50 Entrepreneur by Business Leader Magazine. Jared lives in South Florida with his wife and two sons.

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