8 Key Variables

of Any Co-op/MDF Program

HOW TO MAKE THEM WORK FOR YOU

Any comprehensive promotional allowance is made up of eight subject areas that represent the
foundation for the co-marketing efforts between a marketer and its channel partners. These eight
variables must work together to support the go-to-market behaviors of a marketer and its
channel partners. In addition, to be truly effective at driving sell-through throughout the demand
chain to the consumer/end user, each area must support the buying process of the consumer. For
these reasons, promotional allowance programs should be reviewed at least once a year across
each of the variables represented here to ensure their alignment with the changing goals of the
manufacturer, the GTM strategy of the channel partner(s), and the buying behaviors of the
ultimate consumer. This document provides the basis for reviewing existing program guidelines
for new channel marketers to develop their initial set of guidelines.

eBook from CCI: Channel Management Solutions

 CCI eBook: 8 Key Variables of Any Co-op/MDF Program
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Contents

3…......... Introduction

4............ Variable 1: Program Eligibility

5............ Variable 2: Program Period

6............ Variable 3: How Funds Are Earned

8............ Variable 4: Eligible Products

9.......... Variable 5: Eligible Activities

10.......... Variable 6: Reimbursement Percentage

11.......... Variable 7: Creative Requirements

12………. Variable 8: Reimbursement Methods

13……….. The Program Guidelines 12345678 www.channelmanagement.com

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Co-op/MDF programs (often more generally known as “trade promotional

allowance programs” or, more simply, “promotional allowance programs”) are a
large expense for most channel marketers—often the largest single expense line
item, representing as much as 10%-15% of the total channel marketing budget.
Yet many channel marketers fail to capitalize on their program as a business building
tool, treating it instead as a cost of doing business. Aggressive marketers who
embrace the value of the program view it as a means to achieve sales and marketing
objectives, and therefore regularly review and update their program to ensure the
This e-Book is written
program guidelines contribute to those objectives. This reassessment is particularly for anyone as a
important in dynamic industries — such as technology — where products, purchase foundation to create a
processes, and even the channel partners themselves change with seemingly
increased frequency.
new program or
evaluate their current
When reviewing each of the variables represented here, it is important to consider
the go-to-market strategy of your channel partners as well as the programs offered co-op/MDF program
to them by your competitors in addition to your own sales and marketing goals. It for optimal
must be a conscious decision to develop a program that “Meets Competition” or performance.
“Beats Competition.” A properly-designed promotional allowance program can be
a strong competitive advantage.
This e-Book is written for anyone as a foundation to create a new program or
evaluate their current co-op/MDF program for optimal performance. All Co-op/
MDF programs are based on eight key program variables. When each variable is
thoroughly considered independently, the resulting promotional allowance program
is truly greater than the sum of its parts, resulting in a well-engineered sales and

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marketing program. Presented here are considerations and best practices for each
of the eight variables to help unlock the full potential of each.

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Variable #1: Program Eligibility

Overview
“Program eligibility” defines the requirements or threshold that channel partners must achieve to qualify for funds. For most, the
channel partner must simply be “Authorized,” however, other marketers—particularly those with complex channel models—have
other requirements such as minimal sales thresholds or related service/support capabilities.

Best Practices
Provide availability of a program to all channel partners—no matter how small—as long as they can demonstrate qualification
criteria. The benefits of the program can scale as an individual channel partner grows. For some industries, it is important to
establish eligibility requirements to exclude grey market products which may not be authorized.

Trends
Design unique programs to address the needs of each unique channel partner segment that aligns with, and facilitates, their go-to-
market strategy. Each segment may require a different program structure based on how they promote their company and interact
with customers. So, any of the eight variables presented here can be tailored to the unique needs of individual partner segments.

Legal Considerations and Ramifications

Robinson Patman guidelines were authored (and enforced) by the FTC as way to prevent price discrimination and thus ensuring fair
trade between channel intermediaries. Essentially promotional allowances are considered to be another form of wholesale price
discounting by the FTC. In summary, the Robinson Patman guidelines state that, “Competing channel partners must be offered
similar programs on a proportionately equal basis.” Each of these points are represented below:

Competing refers to any channel partner that might be targeting—or accessible to—the same consumer.

Similar Programs doesn’t mean “identical,” as again, any of the other variables can be modified to address the needs of different
channel segments

Proportionately Equal refers to the ability to scale a program based on the size and potential of that channel partner. Therefore a co-
op program that earns 3% in promotional allowances is considered “proportionately equal” even if it earns one channel partner
$100,000 and another $1,000 based on the prior sales volume. It is therefore compliant with the Robinson Patman guidelines.

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Variable #2: Program Period

Overview
Program Period refers to the duration the allotted funds are to be used before they expire. Most typically, the duration is usually
defined as quarterly or annual. In the case of annual programs, the program period is usually defined as the calendar year—which
may or may not coincide with the marketer’s fiscal period, but rather more closely aligns with how channel partners plan
promotional events and programs.

Best Practices
Two factors drive the selection of the correct period: a) the length of the planning cycle as required by your channel partners, and b)
the seasonality of your product and your desire to focus fund investment during key promotion periods.

Trends
While annual programs were always the most common—and remain so for consumer products in the retail channel—B2B clients
are trending to quarterly planning periods. For co-op programs that rely on an accrual process, rolling programs that both earn and
expire funds each month on a rolling 12-month first-in-first-out basis (FIFO) provide a consistent foundation for channel partners.
The more traditional alternative is to expire all unused funds at the end of the year, only to start anew in January of the following
year with a zero balance or continued access to remaining balances for a limited time.

Legal Considerations and Ramifications

No direct requirements that might interfere from offering one period over another to different channel segments, as long as the
amount offered is proportionately the same over an annual period.

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Variable #3: How Funds Are Earned

Overview
This is a decision of whether to structure a program as a co-op program based on a predictable earned accrual as a percentage of
past purchases, or an MDF program relying on discretionary fund distribution based on future potential (Note: “MDF” is an acronym
for Market Development Funds, and is sometimes referred to Business Development Funds or BDF).

Each alternative is defined below along with its associated advantages and disadvantages:
Program type/definition
Co-op
 Marketing allowances are accrued as a
percentage of past sales
performance—usually 1%-5%
 Guidelines are well-defined, with
comprehensive POP requirements
MDF
 Discretionary funds are issued based
on future potential
 The available funds are often not
announced to channel partners in
advance, but are negotiated to
achieve specific goals
 Often require less complete Proof-of-
Performance documentation than
traditional co-op programs
Advantages
 Funds are forecastable by channel
partners, and therefore easier to plan
programs in advance
 Typically require minimal pre-approval
administration, fostering ease-of-use.
 While not a requirement, more
rigorous proof-of-performance (POP)
documentation is typically required for
each activity
 Ideally suited for activities qualifying as
a marketing expense
 Funds can be disseminated more
dynamically to address the needs of
rapidly changing markets or industries.
 Typically used for activities categorized
as contra-revenue expenses by
Sarbanes Oxley guidelines (aka: SOX)
Disadvantages
 Viewed as an “entitlement” by
marketers
 Harder to control/modify distribution
of funds as needs change throughout
the program period
 Pre-approval processes are more
rigorous for channel partners and
program administrators alike
 More susceptible to abuse of the
Robinson Patman act enforced by FTC
(see “legal considerations” under
Program Eligibility)

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Variable #3: How Funds Are Earned

Best Practices
Align your programs with the needs of the industry and the associated channel practices. There is no right or wrong. Those
programs that focus on traditional marketing activities (for example, radio, television, and newspaper advertising) can benefit from
using a co-op program since it provides predictability for channel partners. Additionally, comprehensive proof-of-performance
documentation is easy to attain as a basis to ensure proper use of funds during the auditing process in advance of reimbursement.
Conversely, those industries and programs that rely more on business development activities as a basis for program design (for
example, Incentive Programs, or co-funding a product specialist in a sales or technical role) can benefit from the more rigorous pre-
approval processes typically present in MDF programs.

Trends
Many industries are moving to hybrid programs where traditional marketing activities are funded with Co-op Allowances, while
other activities are funded through discretionary Market Development Funds or Business Development Funds programs. This hybrid
approach is one way of segmenting expenditures such that those activities that qualify as “Marketing Expenses” under Sarbanes
Oxley guidelines can benefit from the unique administration and documentation requirements usually associated with co-op
programs, whereas all the activities classified as “Contra Revenue” are administered in a more rigorous and discretionary MDF
format. Segmenting funds this way also helps to establish limits on how funds may be used to support certain activities.

Legal Considerations
The Robinson Patman guidelines apply to either structure and therefore require equal but proportionate distribution of available
funds between channel partners. Therefore, the decision to assign funds under the more discretionary MDF model (as opposed to
the fixed accrual of a typical co-op model) is not a legal means to disproportionately distribute promotional allowances.

Note: Sarbanes Oxley regulation provides the opportunity to classify some marketing costs as either operational
expenses or contra-revenue, the choice of which has a significant impact on corporate financial reporting—especially
with larger budgets. While operational expense is the preferred designation for financial reporting, strict guidelines must
be enforced for expenditures to be classified as such. Therefore, your guidelines—and particularly the proof-of-
performance requirements required for certain marketing activities—should be pre-approved by both financial and legal
stakeholders within your organization before they are disseminated to field personnel and channel partners.

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Variable #4: Eligible Products

Overview
There are two components to defining product eligibility within your program guidelines—those products that qualify for co-op
accrual (where a co-op program exists) and those products that are eligible for reimbursement when advertised or promoted per
the terms of the guidelines. In most cases, these are the same products, but there are ramifications as to how they might be
classified as shown:
Classification Ramifications
Products eligible for  Only applies to co-op programs, based on purchases or sell-through of those products
accrual  Varying accrual rates between products is often used as loading incentive to buy one product over
another by offering a more attractive accrual rate—although this method of “plus up” accrual is falling
out of fashion in today’s programs
 May exclude more popular products or less profitable products from earning accruals
Products eligible for  Often used to specify which products may be promoted
reimbursement  Occasionally, marketers promoting end-of-life products offer higher reimbursement percentage to
eliminate stock by encouraging additional promotion
 This may also be used as a basis for defining Minimum Advertised Price (MAP) between products, and
setting reimbursement policies accordingly
Best Practices
Advertising policies should be as consistent as possible across all products, specifically: product feature or copy requirements,
illustrations, branding, and pricing policies. Unless there is a specific reason to vary the requirements between each product (or
product family), there should be as much consistency as possible between products to make the program easier to administer and
more attractive for your channel partner users.

Trends
If there is a need to bias any one product over others due to the product introduction or end-of-life phases of their product lifecycle,
special funds are often set aside as a short-term promotional incentive to focus promotion efforts during a limited time. These
special funds may be used as an alternative to varying the reimbursement percentages during these lifecycle periods.

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Variable #5: Eligible Activities

Overview
Eligible Activities refer to the list of sales and marketing program types that qualify for funding or reimbursement in the program. In
general, this list usually consists of some combination of marketing activities (for example, print or online advertising, direct mail,
merchandising, etc.) and those activities that promote sales development (such as training, demo equipment, incentive programs,
etc.). Each activity is accompanied by program requirements and proof-of-performance items necessary to qualify for
reimbursement.

Best Practices
These activities should align with the go-to-market practices for each of your channel partners—as well as correlate with each phase
of the buying process practiced by the ultimate consumer/end user target audiences (during the Awareness, Interest, Desire, Action
phases). Understanding each is a prerequisite to designing any promotional allowance program. To the extent that the marketing
disciplines or buying processes vary between channel or target market segments, it is increasingly common for marketers to offer
unique programs by segment.

Trends
There is increasing emphasis on online marketing activities and business development activities such as training and certification,
SPIF programs, demo equipment, product specialist and others—especially for business-to-business marketers or supporting
products with long or complex selling cycles. While traditional marketing activities are accommodated in almost all programs, the
utilization of funds against these activities has diminished as the online and business development activities gain momentum. Social
media—while an important marketing tool—is still not a reimbursable activity for most marketers. This is because there is
comparatively no direct cost to implement social marketing programs and because proof of performance requirements are non-
existent or vague. However, savvy marketers are providing their channel partners with tools to enable social marketing such as flash
videos (or YouTube videos) and scripted content to help them design and facilitate a comprehensive social media strategy.

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Variable #6: Reimbursement Percentage

Overview
Reimbursement Percentage refers to the portion of the cost of any given activity that is paid or reimbursed by the sponsoring
marketer. Reimbursement percentages usually vary between 50% and 100% of the costs, although different percentages may apply
to the production (ad creation) and execution (media) portions of a single activity. Reimbursement percentages usually vary
between individual activities, but a single reimbursement rate may be applied to all activities allowed in the program.

Best Practices
Lower reimbursement percentages are usually applied to less desirable activities—such as ad specialties (coffee cups, pens, etc.).
When more than one manufacturer is listed within an activity the costs are proportionately divided between manufacturers before
the reimbursement rate is applied. Example: if an advertisement (or other activity) as developed by a specific channel partner
supports two different brands (one from Manufacturer A and another from Manufacturer B) the cost of the ad is initially split
between the two brands proportionately at 50% each. If there is a reimbursement rate of 50% on that designated activity specified
by Manufacturer A, then Manufacturer A pays 50% of that cost, or 25% of the total cost (50% x 50% = 25%).

Trends
Higher reimbursement rates are applied to more desirable activities—as much as 100%. Production or set up costs are also
reimbursed (even at a lower percentage) unless the marketer provides templates or tools for partner use in supporting that activity
(ad templates or similar). In those cases no production costs are incurred when the supplied templates are used. Many marketers
are dropping their reimbursement rates for ad specialties (such as golf balls or coffee cups) and other less effective activities that
don’t directly contribute to lead generation or business development, or they are eliminating them from the program as an eligible
activity altogether.

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Variable #7: Creative Requirements

Overview
Creative requirements may be provided to address any or all of the following:
 General branding guidelines that transcend all products and activities which would include logo usage, colors, and corporate
trademark representation
 Product requirements that specify copy, trademark, copyright, and photo/illustration representation for individual products
 Activity Requirements which define the copy, brand, or production requirements as they might uniquely apply to an activity (such
as truck signage). Where they apply, these requirements are usually presented in association with the activity type.

Best Practices
Creative requirements should be easy to understand and any tools that would facilitate use of the logo should be easy to access
online. Templates and examples should be provided for each instance.

Trends
Limitations on the relative size of the marketer’s trademark as represented on a reimbursable activity are disappearing as it is
accepted that the channel partner’s own branding should be the dominant brand within any co-marketing efforts.

Legal Considerations
Use of your brand by a channel partner is subject to trademark regulations, misuse of your brand is legally enforceable, and
therefore any misrepresentation may not qualify for reimbursement (at a minimum).

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Variable #8: Reimbursement Methods

Overview
Reimbursement Method refers to the form of reimbursement the channel partner will realize assuming adherence across all the
other seven variables. The options are either cash (issued as a check, wire transfer, ACH, or bank draft) or credit (typically issued as a
credit memo). The selection of either is typically a function of industry and/or channel practices.

Best Practices
Reimbursement should occur within 30 days of an approved claim. This will help cash flow for the channel partner and promote
continued usage of the program by your channel partners.

Trends
Major retailers usually expect a credit, as the cost of a co-marketing campaign is often deducted from the manufacturer’s invoice in
advance by the retailer anyway. Other channels, including independent retailers, typically expect some form of cash
reimbursement.

Legal Considerations
Your promotional allowance program represents an expressed contract between you and your channel partners. Non-payment or
delayed payment by you as a sponsor is subject to legal recourse from your channel partner if all other terms and conditions of the
program have been met.

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The Program Guidelines
The above variables are the foundation for the “Program Guidelines” document
which is distributed to key stakeholders specifying fund earning and usage
parameters. In addition, the guidelines document typically includes the following
sections:
 Administrative process and Service Level Agreements (SLAs): This addresses
access to necessary forms and submission processes to secure approval or
reimbursement. The SLAs specify the turnaround time for approval and
reimbursement processes. This section also includes contact information to
address questions or escalate grievances.
 Program terms and conditions: This language addresses the legalese outlining
program limitations liability and may further address the “right to modify or
cancel” the program with no or minimal notice. This is often authored by the
legal stakeholders within your organization.
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About CCI
CCI delivers comprehensive incentive solutions to
optimize sales channel performance. As an enterprise
software and services solutions provider, CCI enables
channel marketers to manage and measure sales and
marketing incentive programs throughout their demand
chain, resulting in greater spending efficiency and
improved program effectiveness.
CCI is proud to work with market leading companies in
technology, telecommunications, and entertainment
such as Avaya, Autodesk, Qwest, SonicWall, Sony
Playstation, and many more. For more information, visit
www.channelmanagement.com or contact us at
info@channelmanagement.com.
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