The economy is strong, manufacturing sales are on fire, and the industry is making a comeback.
But while factories are humming along, the production side of things is only part of the story. In the increasingly competitive manufacturing environment, companies are more concerned about maintaining the channels that bring their products to market. In recent years, manufacturers have invested more in incentive programs for indirect channels, incentivizing contractors, distributors, retailers and resellers to promote their products.
In the fall of 2017, WorkStride partnered with Wakefield Research to survey 250 mid- to large-sized North American manufacturing organizations that go to market via indirect channels. One of the major findings in the study was that companies are spending more on indirect channel benefits, like sales incentives. In fact, 83 percent of organizations spent more on incentive programs in 2017 than they did in the previous year.
The Kinds of Promotional Programs
Of the various, and often creative, ways manufacturers choose to promote products in order to achieve a sales goal, the most popular include:
- Rebates. The intent here is for a reseller, distributor or partner to receive money back for reaching set sales targets, or to get discounts on volume purchases.
- Market development funds (MDFs). These are funds provided by the manufacturer that help the partner promote, market and educate their customers about the goods.
- SPIFs, or sales performance incentive funds. These reward individual sales representatives for selling a certain amount of a certain product.
The underlying goal of all these incentives is for partners to make larger purchases. Of course, the best way to increase sales is to have a product that sells and a team that is motivated to sell. That’s why personalized incentives are so effective.
Perhaps the most popular way of rewarding salespeople is through gift cards. In fact, according to the Incentive Research Foundation, in 2017, manufacturers spent $23 billion on name-brand merchandise and $24 billion on gift cards for their incentive programs.
While these might be the most popular rewards, the question many incentive program managers face is not about what the best incentives are, but how to widely distribute them so that a maximum number of salespeople are rewarded for promoting their product. The mark of a successful channel incentive program is based on its ROI; for every dollar spent on an incentive program, is the organization seeing 1X lift? 2X? 5X? If a company is investing properly in its program, the focus should not solely be about how much is being spent on the rewards for program participants, but on the end result of having an engaging program that drives sales and increases market share.
More Effective Ways to Allocate Rewards and Incentives
At some point in the last year, 80 percent of the surveyed manufacturers failed to meet their sales goals. This is a high number, and may have to do with how their incentive programs are structured. Year after year, it’s the top 20 percent of salespeople who get rewarded, which can drastically reduce the productivity and morale in the lower 80 percent of the salesforce. They are not recognized and hence do not have the same motivation to sell.
Unfortunately, many in-house channel incentive programs lack the tools needed to segment their programs and tailor them in a way that could get them closer to their sales goal. Because in-house programs also eat up a lot of resources, both in terms of time and money, many manufacturers surveyed expressed frustration with the costs in managing their programs.
To reduce program costs, lessen the administrative burden and have more control over customizing and segmenting programs, some manufacturers are taking advantage of the benefits of partnering with a third-party platform program.
Especially for those with over 250 employees, this alleviates many of the headaches with in-house programs, allowing larger manufacturers to edge out a larger space in an increasingly competitive manufacturing market.