Channel incentives serve the dual purpose of helping product sales as well as strengthening vendor-channel relationship. It is important therefore to ensure proper clarity and documentation of the incentive schemes as well as claim settlement, so that incentives do not end up as disincentives for the channel

Principals regularly announce schemes and incentives to push product sales. Nothing wrong with that. The problem arises when there are too many schemes running simultaneously and the manufacturers are not able to meet their commitments. This is especially the case during quarter and year endings. Agreed that manufacturers are under immense pressure to meet their quarterly or annual sales targets and hence offer highly tempting discounts and incentives to push sales. Despite their misgivings, the channel generally lap up these schemes as incentives on offer are usually too enticing to pass up.

Most manufacturers have multiple product lines catering to different customer segments. The issue gets complex when the manufacturer has multiple schemes running for each of their myriad SKUs. And the larger the manufacturer, the more complex the situation! When thousands of claims pour in from all corners of the country on a daily basis, and each claim has to be verified and processed, one can get an inkling of the humungous task faced by the manufacturers. If claims are not settled at the appointed times, channel partners accuse principals of making empty promises. While this may not be entirely true, the channel is justified in its criticism.

Vendor call
So does the crux of the problem lie in the fact that incentive schemes are far too many and far too frequent? Yes and no say the vendors. According to some, the schemes are never too frequent. The problem arises when the principals are unable to honor their commitments. Whenever incentive schemes are controlled, consistent and honored, there is no issue.

Said S Rajendran, GM-Sales and Marketing, Mobility and Display Products Group, Acer India, “In an industry where margins are under constant pressure and RoI is sometimes an issue, channel partners look at the principal organizations to ease their pain. Channel schemes are structured to either incentivize partners to 'push' up sales or to make it easier for them to sell, by giving customers an additional incentive to buy.”

Agreeing with him is Sandeep Arora, Channel Sales Manager, Intel South Asia, who said that the need for, or frequency of incentive schemes is dependant on the short, medium and long-term goals of the vendor organization to move its products in the market. “Incentive schemes are a means to popularize vendor products in the channel, liquidate inventory and push products for initial impact,” he added.

According to Gurpreet Kanwal, Head-Channel Marketing, Xerox India Ltd, “Channel schemes/incentives are profitable propositions because they help business expansion of both the channel partners and the vendor. The frequency and number of schemes is actually a derivative of the demand and requirement of the channel partners and customers.” She feels that incentive schemes serve as a platform to encourage the channel partners to perform better, increase their revenues and profitability; Allow vendors to acknowledge and reward the hard work of channel partners by offering them monetary and non monetary benefits and provide an opportunity to recognize the star performers and enhance sales of the company.

“Incentive schemes are a means to popularize vendor products in the channel, liquidate inventory and push products for initial impact” Sandeep Arora, Channel Sales Manager, Intel South Asia

“It is best to document the details of the schemes at the very beginning and ensure that the entire procedure is centralized. Avoiding any hidden clauses and making things clear earlier on helps avoid any undue heartburns” SM Ramprasad, Manager-Consumer Products, Epson India

Given the above, there still are vendors who feel that keeping too many schemes and incentives creates confusion and inconvenience not only for the channel partners but everyone involved. According to them, it is better to announce loyalty programs with fixed parameters at the beginning of the quarter, clearly indicating the 'reward schemes' for all the efforts put in by channel partners. It is also important to keep the communication lines open and collect feedback on schemes so as to reduce problems. “Schemes and incentives play a critical role in a company's channel strategy. With a crowded market place and a variety of products available, it is essential for companies to engage with their partners on a continuous basis. Not only do these programs boost sales they are also an excellent motivational tool for channel partners. In addition, such programs suffice as key differentiators for vendors in the market,” opined Dhiren Singh, Assistant Director of Marketing and Consumer Imaging, Canon India.

Incentive schemes also create a pull for the product and excitement at the customer level. The need of the hour, vendors feel, is enough people to sell the products and make them available to the customers. Stressing that that 'push' should not be always seen from a negative perspective, principals are of the opinion that incentives are the additional 'motivation' that channel partners need to concentrate on a vendor's offering. Well-designed schemes help to strengthen the bond between the vendor and the channel organization, according to them.

“Incentive schemes allow vendors to appreciate the channel partners' efforts in growing the business. It is another method to ensure team building. Incentives certainly cannot sell a product, rather they act as a means to rewarding channel efforts,” believes Ajay Verma, Director-Channels and Alliances, Symantec Corporation.

Given that many products and services are truly unique, high-end, and are competing with new introductions in the market, companies need to create a strong recall and brand loyalty for their products in their partner minds. Like R Manikandan, GM-Sales and Marketing, LG Electronics Ltd put it, “The ultimate goal of any scheme is the profitability of the company and its partners, liquidation of goods and satisfaction of the end consumer.”

Vendors are also clear in their verdict that channel partners do not unnecessarily raise an issue of claim settlement. According to them, if the fulfillment process is well documented, there would be no cause for complaint. However, if there is an inordinate delay even when all terms and conditions of a scheme have been met, then the channel feels let down. So it is critical for the vendors/principals to keep the communication lines open at all times, work closely with partners and ensure that there is no room for complaints.

“Claim settlement is a very sensitive issue for all companies and any delay definitely causes friction. All companies have faced this during some point. However, as processes have evolved, this area has been streamlined to ensure complete channel satisfaction. Most effective solution to solve this issue would be to have simpler schemes, unambiguous procedures for settling claims, proper supporting documents and using IT systems to streamline the same,” said Singh of Canon.

Since manufactures are able to meet all their commitments to the channel most of the times, delays are mostly attributed to technical reasons. “In the event of a delay, channel partners need to seriously take stock of vendors and reconsider their relationship. In any relationship, both parties need to put their best foot forward to sustain each other and grow together,” advised Rajendran of Acer.

Vendors also feel that multiple schemes cause prob­lems if their backend infras­tructure is not robust enough to handle them. With many vendors adopting the online way, and claim processing being outsourced to professional organizations, these problems can be resolved faster. Multiple schemes running parallel can cause confusion in claim settlement if communication and documentation is not explained to the partner and the claim processing person clearly. “It is best to document the details of the schemes at the very beginning and ensure that the entire procedure is centralized. Avoiding any hidden clauses and making things clear earlier on helps avoid any undue heartburns,” said SM Ramprasad, Manager-Consumer Products, Epson India.

“Well documented procedures from the vendor side are the best way to handle incentive claim settlements, since this provides for both clarity and transparency in the entire procedure” Harish Kumar Shetty Binary Systems, Bangalore

“Since Incentive schemes apply for both push and pull products, it would help if the principals ensure that claims are settled in time, as the money would go into the further growth of the business” Vinod MulchandaniAarvee Computers, Mumbai

“Too many incentive schemes result in complications as regards settlement of dues. Many volume products get sold at discounted rates and partners do not stand to gain any profitable margins. So lesser number of schemes may be a better option” Sanath Babu, Director, Sri Durga Computech, Bangalore

Most vendors indicated that incentive structures are bought out after a lot of analysis on the market trends and pricing. Customizing schemes for various markets is also a criteria since the dynamics are different across geographies on a variety of parameters. Attention to detail and focus ensures that schemes act as a source of encouragement. Incentive schemes are devised based on feedback as well as market imperatives since it is not possible for companies to work alone and capitalize on all the opportunities that are available today. It is essential therefore that companies work with a strong network of partners to leverage their complementary strengths. Principals need to keep in tune with their channel requirements and market developments by designing and developing schemes and incentives that are reflective of the market scenario in question.

Channel partners also need to provide their feedback on the products and schemes as they are a part of the market and understand the pulse and needs of the consumers, vendors say. Since most of the schemes are based on vendors' interaction with the channel partners and their feedback on previous schemes and market require­ments, the general belief is that the cycle of channel partner and vendor interactions, which solicit feedback and understan­ding, help strengthen the vendor channel partnership.

Channel verdict
Like the vendors, the channel too is divided in it opinion as regards incentive schemes. Some part­­­­ners feel that schemes are announced every quarter, so it is very rare when two schemes are launched simultaneous or back-to-back. Therefore, they get enough space between each scheme. The only thing, which should be taken care of by the principals, is to ensure that the incentives or claim reimburse­ments are paid upfront.
However, there are other partners who claim too many schemes are launched too frequently. This means that everyone involved concentrates on sellouts rather than payouts and this causes delays in settlement of claims besides amounting to wastage of resources.

According to a leading system integrator in Chennai, schemes have always been an integral part of the channel business to push sales. However, it became a negative factor when resellers started to discount prices (rather undercut prices) on products, calculating the back-end incentives they would earn on achieving targets. The various levels of back-end incentives offered by the vendors like volume discount and then monthly achievement and finally, quarterly targets, put more pressure on the channels to achieve numbers and they take to shortcuts in business. Having schemes for every product from every leading vendor creates unnecessary confusion and issues between the channels and vendors. “Resellers need some dedicated person at their office to manage with the schemes-right from applying and entering the scheme to maintaining sales records; making the claim process to follow-ups and more, till one gets the incentive cheque,” he opined.

According to another sub-distributor in Chennai, “Schemes were good when they were announced for the first time about seven years ago. Those days the issue of discounting and undercutting did not arise in business. After the back-end incentive concept came into business, it lead to an unholy war. Channels face claim issues (delays) with almost all vendors. Except for a few vendors, many companies never honor their commitments.” He is of the belief that vendor schemes should be registered with the local associations and approved by them, before announcing it in the local market and channel associations should be proactive and condemn vendors if they fail to fulfill their commitments. Agreeing with them is Sanath Babu, Director, Sri Durga Computech, Bangalore, who said, “Too many incentive schemes result in complications as regards settlement of dues. Additionally, many volume products get sold at discounted rates and partners do not stand to gain any profitable margins. So lesser number of schemes may be a better option.”

For Girish Madhavan, Director, Quadsel Systems, Chennai, “Schemes are very important to incentivize and recognize the performers. If managed well, schemes (especially back-end incentives) are the best recognition for the amount of pressure we take in business.”

Given today's competitive market, everyone has to fight for his or her own space and needs to put in some extra effort. “Incentive schemes therefore help both the manufacturer as well as the dealer to earn some money by selling the products,” said Asif Khan, Director, Technocrat Infotech, Kolkata.

Since customer pull is always created by vendors, incentive schemes serve as one of the few options that are available for vendors, believes Ajaya Kumar, CEO, Park Group, Delhi. Continuing in the same vein is Ranjan Chopra of Delhi's Team Computers who said, “Schemes and incentives are important and play a key role in motivating the people involved in the sales process. Most of the schemes are appropriate, segment specified and have a defined time line. Therefore their frequency does not affect their effectiveness.”

For Arun Jalan of Jalan Infotech, Kolkata, “Incentive schemes help the vendor companies sell their products and are a good booster for the channel. Though the schemes are sometimes quite frequent, the channel is quite habituated to it and always looks forward to the schemes. This makes the vendors more competitive.”

Vinod Mulchandani of Mumbai-based Aarvee Com­puters feels that since incentive schemes apply for both push and pull products, it would help if the principals ensure that claims are settled in time, as the money would go into the further growth of the business.

While partners argue on the plus and minus of incentive schemes, they quite agree with the verdict of Harish Kumar Shetty, Binary Systems, Bangalore who said, “Well documented procedures from the vendor side are the best way to handle incentive claim settlements, since this provides for both clarity and transparency in the entire procedure.”

Agreeing that manufactures generally meet all of their commitments to the channel in terms of incentives, partners indicate that it is very important for the channel to not take verbal commitments but rather make things clear in writing. Given that often partners sell products by giving extra discounts to customers and look forward to incentives from their partners for their extra investment, it becomes more important that the entire process of reimbursement be made more easy and methodical.

Against growing competition, partners feel that incentives help the channel to give extra benefits to the customer and at the same time earn margins by selling the products. Given that delays in claim settlements are a result of lack of synchronization and documentation, rather than of vendor morality, partners feel that it is very important for the principals to study the market properly before announcing any scheme. This, according to them, ensures that the incentive structure is in tune with market developments. The schemes should be made based on market dynamics and should vary accordingly, is the general verdict.

Interestingly while most partners seem to settle issues directly with their principals they feel that IT associations can always come forward to settle the issues between the channel and the principals. They can discuss with the representatives of the manufacturers to sort out the authentic claims in a fast and easy way.

IT associations and their say
Incentives schemes and their benefits or complexities depend on the nature of products or vendors promoting them opine most IT associations. Any scheme that is directly floated by the vendor to the partner makes it viable and accountable. Complexities, they believe, arise if too many partner tiers are involved. For some products, the schemes are too many and too frequent and the partners lose control on both inventory and profit management.

“If the principals do not document the schemes and take necessary endorsements from their finance department or top management, delays are bound to happen. More than the multiple schemes, complexity results from the absence of documentation with due endorsements. This ultimately­ hampers claim verification process,” said Anand Rao, President, AIT (Association of Information Technology-Karnataka).
“Although schemes are designed for both pull and push products, most often schemes are made for products which enjoy brand pull, since the vendor is also keen on the numbers. While vendors usually stand to benefit from their schemes, partners who are not smart enough to make use of schemes end up with huge stocks which they then sell at meager margins,” he added.

All said and done, IT associations also believe that incentive schemes help build vendor-channel relation­ship. Most issues relating to claim settlement therefore seem to be subjective. While most vendors do keep their commitments, there are delays. In the larger scheme of things, backend disasters arise when the vendor has fund problems or cash flow issues. Whether this is due to technical reasons or otherwise, it is important for the channel partners and their principals to work in sync so that both stand to gain by the incentive scheme on offer. Since incentive schemes ultimately are about offering better prices, the vendor who sells has to work to create more awareness of the product and establish a wider customer reach for the same.

Settling claims
While most channel partners appear to settle their issue as regards incentive dues directly with the vendor, IT associations often advise vendors not to float schemes so often if they are internally not geared to handle the settlements effectively and efficiently. Being a mutual issue between the vendor and channel, most IT associations do not seem to take the onus as regards issue pertaining to claim settlements. The general advise that they give to the principals is to make the objective or the plan clear while devising the schemes; discuss the same with the partners and customize the scheme that is mutually agreeable. Also they feel it is imperative that vendors document the scheme and spell out the conditions that both mutually have to comply with and take necessary endorsements and approvals from within their organizations to float the incentive schemes.

In summary therefore, there are certain issues related to the dealer schemes and incentives set up by the principal companies, which spring up often. The individual companies and the manufacturers have mutually settled these issues. The matters didn't extend to the point where IT associations had to interfere. Also there's always a concern that if the matters will be taken to the IT association then all the pending claims would be stacked for an uncertain time.

As KL Lalani, President, Compass (Computer Association of Eastern India) put it, “Till date as far as Compass is concerned, we have received no complaints from members related to incentive settlement delays. However, if any such grievances are lodged with the association then definitely we would address the issues and help the dealers realize the claims which are authentic.”

Manufacturers on their end need to ensure that the schemes are kept simple in order to cut short the lengthy verification process involved. It is important to continuously monitor and fine-tune the incentive structure to ensure that it is in tune with market developments. Pushing the channel to sell a product for which there is no customer-pull will only result in a blockage in the movement of stock. Given that the current market scenario is a sign of things to come, it is important to make sure that incentives offered do not end up as a disincentive for the channel,” he added.

Subbalakshmi BM
(With inputs from Snigdha K and Nelson Johny in Mumbai, Ruth Samson and Lata Singh in Delhi, Piyali Guha in Kolkata and S Gopikrishna in Chennai)

Page(s)   1