The Channel loyalty program definitive guide 2023

Based on our channel programs experience, we created our 2023 channel loyalty program definitive guide to provide valuable information to professionals that need to build and run effective channel loyalty programs.

This is an advanced guide to channel programs for people who want to go to the next level with channel programs.

Let’s have a look at some stats. According to Invesp, 95% of marketers say they know how important multichannel is, but only 73% have a multichannel strategy. Invesp also states that multichannel shoppers spend three times more than single-channel shoppers. The most used platforms to communicate with partners are social media (16%), email (14%), advertising (14%) and website (14%). The most common reasons why marketers don’t develop multichannel strategies are lack of time and resources (23%), lack of buy-in at board level (23%), and lack of investment in tools.

In addition, only 30% of marketers are confident with their multichannel strategy, while 67% are not confident. Finally, 50% of multichannel marketers say they usually or always achieve their financial goals.

So, whilst there is an increased understanding from seasoned marketeers that multichannel strategies are important, there is still very little marketing that focuses on a specific distribution channel. Making channel entities (distributors and resellers) the focal point of your strategies can bring several benefits:

• · Quick wins. Finding new channels can be costly and time consuming, but activating a channel program can make all he difference. Typically, channel programs will increase your market share in the selected channel. 
• · It’s a step beyond traditional channel programs. Most companies who operate with direct distribution channels are already using sales channel programs, typically consisting of back-end rebates and training. Those channel programs tend to be tiered and based on the readiness of the brand for a channel program, rather than on the loyalty of channel resellers.

Why this guide?

Learn how to build a channel program.

Understand the key aspects of channel loyalty programs and apply them to your strategy

In this guide, you’ll find:

• · High-quality information about channel loyalty programs.
• · Hacks to build an effective channel program.
• · How to build a channel program that becomes a case study.
• · Free resources to help you with your programs.

1. The basics: the importance of Market Development Funds (MDF) and Co-Op funds

The Market Development Funds (or MDF) and Co-Op funds are both key strategies for distribution channels. A 2015 Gleanster report shows that

• · 83% of brand marketers believe MDF and Co-Op programs have an impact.
• · The average MDF annual spend is 12% of the overall marketing budget.

What are the differences between these two funds? Which one is best for you?

Market Development Funds (MDF):

The Market Development Funds are based on channelling monetary funds to channel partners inline with marketing activities. The key benefits are:

• · When used correctly, as a brand, there is clarity on the KPIs. Your channel becomes an extension of your marketing team.
• · Being upfront negotiations against the execution of critical activities, when used with the right level of strategy, brands can drive the demand through MDF. 

Co-Op Funds:

Typically, Co-Op funds are for channel partners who have already sold the product or service. These funds are usually based on a percentage of prior sales. They are marketing-based rebates.

• · Co-Op funds can act as a sales driver, gaining higher revenues.
• · Sometimes, they can effectively replace sales rebates.

In order to better understand the difference between both concepts, here’s a comparison table:

Marketing funds are the first layer of channel loyalty programs. Here are some best practices for both programs:

• · Make your program simple: Your partners must understand the rules, goals and expectations. An online portal where partners can manage their account and keep tabs on their status is a good idea.
• · Engage with your partners: Make sure your partners know they are the centre of the program. It’s advisable to provide training and have active and ongoing communication with them.
• · Track results: This will help you find any shortcomings and compare the real-time results with your estimates.
• · Have a process for monitoring and implementation: You must have a process to keep track of your partners, i.e. if they are running sales. Consequently, it is essential to have an optimal implementation tracking system.

Focus on making your program easy to understand and keep track of!

2. The process of creating a channel loyalty program 

Let’s take a deep dive into the program setup process:

Pick the channel program that suits your business

There are two main types of channel loyalty program.

• · The breadth goal: The main idea here is to extend the channel in order to increase the overall run rate. This will enlarge your channel pyramid.

• · The depth goal: The goal is to increase market share via existing channel partners, increasing their turnover. A key difference between this and the previous goal is the emphasis on current channel partners.

According to the program key goal, channel programs will have the following operational differences:

Define which type of qualified channel partners you want:

When implementing a loyalty program, it’s essential to choose qualified channel partners that will help you expand your business. To find qualified partners, consider collecting the following information from them:

• · Are they familiar enough with your brand / value proposition?
• · Current engagements with competitor companies.
• · Commitment level they can show.
• · Knowledge about the service or product you sell.
• · The average product or service volume they sell per month / year.

Think about training

After choosing your partners, you should consider training them up. But first, you need to answer the following questions:

• · Are your partners currently offering similar products or services to yours?
• · Are they implementing marketing and communication strategies?
• · Are they evaluating their performance continuously?

If any answers are “no”, you should seek to improve your partners in those areas.

The more they know about your product or service, the better they will be able to sell them. Don’t cut corners here – this is an essential investment.

Setting your channel program goals

As with any loyalty program, you need to set the right objectives in order to make it successful. Those should be SMART goals (Specific, Measurable, Attainable, Relevant, Time-bound).

These are some KPIs to help you keep track of your goals:

• · Registrations rate: Getting new members is critical to generate revenue, especially of course, in the breadth type of programs.

• · Channel partner lifetime value: The lifetime amount of money each partner is expected to spend on your business during your relationship.

Channel partner lifetime value = Average order value x number of iterations per year x average retention time (years)

Of course, you should consider seasonality when identifying the average order value.

• · Channel retention rate: The percentage of channel partners that are staying with your company. There’s no specific formula for that, but Jeff Haden on Inc has provided an accurate way of measuring the Customer Retention Rate, which can be extrapolated to channel partners as follows:

• · Channel partner retention rate = ((CE – CN) / CS)) x 100

Where:

CE = Number of channel partners at the end of the period

CN = Number of new channel partners acquired during the period

CS = Number of channel partners at the start of the period

• · Channel partner redemption rate: It shows a comprehensive overview of how relevant the program to the end consumer is. The redemption rate is calculated as on the below:

Redemption rate = Number of coupons redeemed / Number of coupons issued

• · Repeat purchase rate: If your goal is breadth and you want to run sales, this metric will be essential for the program. It helps you to know the consumers’ loyalty level. In addition, with this formula you can estimate your sales volume. This is calculated as follows:

Repeat purchasing rate = Number of channel partners who have shopped more than once / Total Number of channel partners

· Net promoter score: This metric calculates your clients’ experience to estimate your company’s growth. Here, you have to develop some key questions and answer them using a 0-10 scale. When you have the responses, you will be able to classify your customers in the following groups:

1. Promoters (score 9-10): Users who are extremely likely to recommend your company.
2. Passives (score 7-8): Users who are satisfied, but they’re not going to recommend your company.
3. Detractors (score 0-6): Unhappy users who may hurt your company’s reputation.

Choose the right channel loyalty platform

For most scenarios, a specialised platform is a must. Excel spreadsheets will only be adequate for depth-based programs with a very small amount of channel partners (for example, less than 10). If you don’t have a proper backend system when working with many partners, you can lose control very quickly.

See section 4 for our list of recommended platforms.

Retain ongoing communication with partners

Communication is a crucial element of any channel loyalty program. This is how to do it properly:

· Develop a cohesive and proactive communication strategy: You can improve your communication by:

1. Properly defining the message you want to give to your partners.
2. Planning your communication routine.

· Segment your partners: If case the program is broad, it is essential to adapt your communication to each partner type in order to make your message relevant.

· Direct communication: Build a stronger relationship with your partners by talking to them regularly, either face-to-face or online.

Speak directly to your partners! Get to know them!

3. Channel loyalty incentive types 

There are several loyalty incentives you can offer in your programs. We’ll give you a quick intro on each of them:

Channel sales incentives

This is the most common incentive. Partners are rewarded according to their sales volume, margin or achieved goals. Incentives often take the form of gift cards, entertainment tickets, lunch tickets, tech gadgets, among others.

Key recommendation:

• · Be realistic with your sales incentives: Have a very clear picture of how much you can invest and set the parameters accordingly.
• · Update your sales incentives: For example, if your company is growing, you can reward your partners by increasing the value of the incentives on offer.

Don’t forget to budget and set realistic incentives

Channel SPIFFs (Sales Performance Index Funding Formula)

This is where partners receive a percentage of sales volume. Channel SPIFFs are short-term incentives that pay out automatically.

Key recommendations:

• · Build your SPIFFs strategically: Focus your rewards mainly on the solutions that are working best.
• · Make sure partners are funded quickly: Be quick when paying them.

Channel rebates

Key recommendations:

· Pay on the net price: If you offer multiple channel incentives, you must calculate the rebate accurately. That’s why it’s good practice is to pay a volume rebate on the net price.

· Don’t mix discount and rebate concepts: You must avoid the word “discount” as partners will assume the program is an incremental discount. Make sure you frame it as “rebates” and not discounts.

Referral incentives

The goal here is to expand company reach. Partners are rewarded for deal registration and new opportunities identified. These incentives can also be gift cards, debit cards, etc.

Key recommendations:

· Distribute your incentives beyond your partners: Businesses not included in your channel loyalty program could also recommend your company. If you find new opportunities thanks to a website that is promoting your business, you should give them a referral too. It’s good to offer small and simple incentives as a starting point (this ensures your existing partners don’t feel undervalued). Only offer higher value incentives if they want to formalise the relationship.  

· Make sure your partners are not only focused on the incentives: Partners must feel motivated, but it’s important the motivation is not only to receive the incentive.

Give incentives to the partners

who show the best commitment. You can increase their loyalty even further

Warranty registrations

Your partners can offer warranty registrations to their customers.

Key recommendations:

• · Give your channel partners an incentive: When partners gather new customer data, we recommend offering them an incentive. You can offer them discounts, gift cards, etc.
• · Say thank you for their efforts: People want to feel they’ve made a difference. Call them or send an email to recognise their work. This will keep them motivated and engaged.

Empowerment and training incentives

In most cases, partners will work with more than one company, and of course, your competitors. That’s why providing empowerment and training as an incentive is good practice. You can offer quizzes, certifications, tickets for conferences or tradeshows, among others.

· Ask what they want to learn: Maybe you are focusing on what they already know? That’s why we recommend asking what they prefer in order to make sure they will find it useful.

Activity-based incentives

Like Co-ops or MDFs, reward partners according to the activities they manage.

Partners with lower engagement don’t

 have high expectations of incentives.

Activity-based incentives are a good option for them.

4. Channel loyalty software platforms

360insights

CR Worldwide is a complete platform that includes channel programs, employee recognition, sales incentives, customer loyalty, online learning, among others. It helps you engage with your channel partners and enables you to build an easy-to-use platform for you and your partners. They also offer several resources to help companies make loyalty programs.

Apex loyalty

Apex loyalty provides tools to help you interact and engage with partners, alongside program segmentation and customisation of incentives and communications.

LoyaltyXpert

LoyaltyXpert is a comprehensive package that helps you develop customer loyalty programs, influencer loyalty programs and channel loyalty programs. It offers Loyalty programs for specific industries such as eCommerce, FMCG, Education, Automotive, Electrical, Paint, Employee and NBFC loyalty programs.

Channeltivity

Channeltivity is for deal registration, requests, channel management, training and co-branded activities. It integrates with HubSpot CRM and Salesforce.

Allbound

Allbound is a channel collaboration platform that offers real-time access to sales enablement, marketing tools and resources.

Impartner

Impartner is a SaaS PRM that integrates with a number of CRM systems.

LogicBay

LogicBay combines a channel technology stack with a proprietary channel profit-centre methodology.

Magentrix

Magentrix provides channel loyalty programs portals.

Zinfi

Zinfy allows partner relationship management, partner marketing management and partner sales management.

RunRunPromos

Finally, RunRunPromos, our own platform, helps you build B2B & B2C promotions, but also channel loyalty programs. You can create a customised site, make changes at any time, get real-time metrics, have an incentive panel and communicate with fully customisable automated emails. All this in 20 different languages.

5. [Checklist] Steps to launch a channel loyalty program

To recap the learnings from this guide:

1. Think about MDF and Co-Op funds as the first layer.
2. Make sure you understand the difference between MDF and Co-Op funds.
3. Define a clear goal for your channel loyalty program.
4. Define and offer the incentives that best fit your business and goals.
5. You will probably need a software platform, so take your time to choose the right one.
6. Plan the launch of your channel loyalty program in great detail.
7. Update your program based on your channel partners’ feedback.

Finally, in order to build a complete Channel loyalty program, you can download our checklist for free!If you have any questions, don’t hesitate to contact us!