Channel incentives are used to improve indirect sales performance, orchestrate partners’ behavior, and engender channel loyalty.

For decades, channel professionals have used channel incentives to drive behavior, whether establishing new behaviors, suppressing old ones, or repositioning partners for a new opportunity. Incentives are also effective in masking deficiencies in business value propositions.

Channel incentives and program management solutions automate and scale channel incentives across a broad set of partners. However, several converging trends have challenged traditional thinking in channel incentive programs, and the resulting complexity and vast permutations are causing channels pros to rethink how they motivate and drive loyalty with partners.

Partners are reporting an increase in the number of brands they work with, and gaining mindshare isn’t as straightforward as it has been in the past. Brands also continue to overwhelm channel partners with too many ad hoc incentive programs. The unfortunate, and too frequent, result of this approach is a channel that ignores or even games incentive programs.

Channel incentives are usually performance-based and aim to improve the yield, reach, or mix of a group of partners. Common incentives include volume rebates, new customer bonuses, sales performance incentive funds (SPIFs), market development funds (MDFs), embedded headcount, and activity-based rewards. Modern incentive programs are experimenting with non-monetary rewards, micropayments, and gamification.

Optimizing channel incentives around changes in behavior as opposed to rewarding existing habits is also important to drive channel loyalty. Brands that excel at deploying the right mix, level, and cadence of incentives will improve revenue and profit from the channel, expand the breadth and depth of customer relationships, and increase mindshare and loyalty of partners.

Brands are facing a number of changes in their channel partner programs. A changing demographic of partners is causing some to change their incentive strategy. It is estimated by CompTIA, the world’s largest IT association, that 75% of the channel will be comprised of Millennials by 2024. This number is even higher in sales and customer-facing roles that need the most consideration in terms of motivating behaviors.

Another significant change is the mix of transacting versus non-transacting partners. For decades, channel programs have been anchored on precious metals. These gold-, silver-, and bronze-level tiers allowed brands to segment and focus dollars toward larger resell targets.

As the majority of new partners look more like influencers, advocates, and alliances, there is a fundamental change in how incentives programs work. Without a set-discount- or percentage-of-revenue-type target, brands are looking at how to accomplish similar behavior modification of partners using capital spending. This creates a different conversation with the CFO and puts increased pressure on channel pros to prove ROI and ensure that processes are in place to reduce overpayments, partner gaming, and fraud.

Without the benefit of the financial transaction, channel programs will need to evolve to ensure proper attribution and to be able to measure influence around the end buyer at each stage. With the buying journey changing at the exact same time, this will be tricky, and advanced tools and technology will be needed to match the customer journey with the partner journey in real time.

Forrester recognizes a wide array of firms in the channel incentives technology space. In addition to partner relationship management (PRM) and through-channel marketing automation (TCMA) companies, there is a dedicated segment in the channel software tech stack around point solutions in the channel incentives and program management (CIPM) space. There are 29 CIPM vendors in addition to the almost 60 PRM and TCMA firms that broadly support incentives functionality.

Here Is A Glimpse Of The Global CIPM Market

• Twenty-nine channel software vendors have CIPM solutions, driving $426 million (USD) in pure software revenue. Another $800 million is estimated to be driven via services, either direct or third-party. Consulting services, installation, implementation, integration, and compliance all have large downstream opportunities as well as a growing data management, automated workflow, and AI component.
• Forrester predicts the CIPM software market to grow to $935 million by 2024, a CAGR of 17 percent. Another $1.9 billion will be generated in services in this ecosystem.
• CIPM is a horizontal solution serving indirect channels in all 27 industries. The top five industries by revenue are technology/telco (26%), manufacturing (18%), automotive (12%), consumer packaged goods (12%), and healthcare/pharma (11%).
• Over 4,000 employees are dedicated to CIPM software development and sales, with tens of thousands of others making money on services wrapped around it.
• This is a mature industry; the average company is 19 years old and mostly US-based. One-third of companies were founded outside the US, however, higher than any other category of channel software.

While channel incentives programs are growing in scope, complexity, and scale, 22% of global marketers already consider managing their channel partners to be one of their greatest challenges. Nonlinear ecosystem programs that offer extensive personalization by partner type and customer opportunity are replacing traditional tiered partner programs, and it is difficult to run incentives in an increasingly diverse, highly fragmented environment.

What works for one set of partners won’t necessarily work for the next.

To ensure that your incentives program and technology investments meet the needs of your expanding channel partner ecosystem, Forrester recommends you analyze the current partner program and determine gaps, add channel incentives to individual partner personas (IPPs), conduct an inventory of your current processes and technology, and make sure to work with a vendor that aligns with program requirements.

We have taken a deep dive on these topics in our recent report, “Now Tech: Channel Incentives And Program Management, Q1 2019.” We take a closer look at vendors such as 360insights, Amplifinity, Apttus, BrandMuscle, ChannelAssist, Channel Fusion, Channel Mechanics, E2open, Fielo, Herald Logic, HMI Performance Incentives, Incentive Solutions, ITA Group, Maritz Motivation Solutions, Model N, Partnerize, Perks WW, SproutLoud, Vistex, Vortex 6, and WorkStride.

Further Reading

What I See Coming For The Channel In 2019

Channel Software Tech Stack (2019) — INFOGRAPHIC

Partner Relationship Management (PRM) Comes Of Age

Through-Channel Marketing Represents The Third Stage For Sales And Marketing Leaders

Channel Data Is A Competitive Differentiator