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Show me the money

01 Feb 2007

We crunch the numbers and see how MDF can work for you

Practically every vendor has an MDF program, however one US-based analyst firm estimates that around 25% of MDF dollars go unclaimed each year.

So how can you access and effectively use MDF?

Firstly, what’s the difference between marketing development funds (MDF) and co-op?

Well, MDF is probably best described as promotional funds provided by vendors and used by resellers to promote product sales. However MDF can be something of a grey area, as funds are negotiated between a reseller and vendor and may not be linked to purchase volumes.

Unlike co-op – promotional dollars earned on a percentage of sales volume – MDF is dispensed on a discretionary basis.

Eric Ryda, Vantex mobile wireless manager, recommends resellers applying for MDF have a clear idea of what they want out of any funded campaign.

“Like most things in life and business, it pays to ensure you have a clear set of objectives and measureable outcomes from any marketing or promotional campaign. This is true regardless of whether it’s your own money or your suppliers,” he says.

Ryda says it’s also very important to be able to demonstrate the ROI to the vendor.

“Gone are the days when vendors would cough up for a day at the tennis or rugby without having a sound business case to back it up. Relationship building is only a valid reason when you can demonstrate it will result in a corresponding increase in business.”

Any request for MDF should be in proportion to the exposure given to the vendor’s products, says Ryda, and resellers should ensure they only ask a vendor to support their portion if another product is being promoted.

“If the MDF is being used at a trade show and you have dedicated a quarter of your space to a vendor then only ask for 25%. However if the event is dedicated 100% to one brand don’t be afraid to ask for full funding – you might be pleasantly surprised.”

Ryda suggests partners make the most of MDF by creating campaigns that can be easily replicated at a later date without significant investment. If you’re asking for funding to assist in a print campaign then create ads which can be replicated or used after the event, he says.

“It’s also a good idea to include pictures and testimonials of the event and details of any sales resulting from a funded campaign. This helps get your claim paid quickly and is useful when applying for future funds.”

However Ryda has a few words of warning when it comes to what MDF doesn’t cover.

“Don’t use MDF to promote competitive product. If you deal with multiple competing brands it’s important your application outlines how you’re going to ensure the funding supplier will get the full benefit of their investment and how it won’t benefit competing brands.” Equally, says Ryda, don’t expect MDF to cover things such as travel, accommodation or meals unless it’s specifically approved for such activities. “And don’t wait until after the event to request funding – requests should be submitted as early as possible.” With co-op most resellers tend to opt for traditional advertising mediums however MDF can open the doors to other forms of promotion, such as presentations and seminars. Depending on the program MDF can be used for displays, in-store announcements, signage and website advertising.

John King, managing director of ESP, says if used correctly MDF is an incredibly useful thing.

“We tend to use it on events, trade shows and education in general. We definitely don’t use it on advertising which can be a bit hit and miss since ESP is so specialised,” he says.

King says there are three key ingredients to accessing MDF.

“Firstly you need to have a bloody good relationship with the vendor, secondly you need to supply a sensible business case that also shows a bit of ingenuity and creativity and last you have to show the vendor a good track record.”

Typically, says King, all vendors look for a positive ROI and says by implementing good reporting tools ESP has consistently been able to prove its worth.

From a vendor perspective, MDF exists to assist channel partners in marketing their solutions to existing and new customers.

Chris Barton, Sonicwall regional manager, says effective MDF activities increase revenue for both parties.

“As it’s accrued as a percentage of sales a MDF program enables channel partners to execute successful marketing activities which they would otherwise be unable to do from a financial perspective,” he says.

Barton says the amount of available MDF depends on revenue generated by sales, so demonstrable ROI is the most important thing he looks for when evaluating requests.

“We ensure our distributor and partners are well versed in our strategy and upcoming plans so all marketing initiatives are fully aligned.

Marketing training is just as important to Sonicwall as technical training and we work hard to help our partners fine-tune their marketing activities to fit their size and type of business.”

Barton says his company tends to use its corporate marketing budget for brand building and MDF for end user demand activities which focus on increasing sales for the funded partner.

He notes that more partners are using the internet for MDF activities, particularly eDMs.

“The most successful projects offer a fully integrated approach, using DM or eDM with telemarketing and a face to face meeting or seminar. The web is often used in the call to action of a marketing campaign and splash pages that capture customer information are invaluable as they enable us to measure the success of a campaign,”

Barton says tradeshows and targeted IT events also offer great opportunities.

“Smaller partners have run successful breakfast forums or after-work functions to showcase a new product or to talk through topical issues and have translated these events into sales.”

The point is, says Barton, the event doesn’t have to be large with all the bells and whistles – it needs to be targeted at a partner’s customer base and offer the potential customer something they need or need to know.

“If they can show that an event - big or small - can translate into Sonicwall sales, then we’re interested as it builds both our businesses and that’s what we mean by being a vendor that lives by the channel.”

However Barton admits his company does receive requests from partners that seem to miss the point of MDF.

Those that haven’t seen the light of day include: MDF to take customers out to dinner, MDF to decorate offices in Sonicwall’s corporate colours, MDF to paint work vehicles in Sonicwall colours, MDF to take customers heli-skiing in Queenstown and MDF to produce merchandise, but not to be branded with the vendor’s logo as the reseller wanted the association with a vendor to be subtle.

However in order to get MDF resellers need to start asking for it.

Mark Dasent, Renaissance Brands general manager, says many resellers aren’t presenting the business case with their requests.

“Some people get stars in their eyes when they look at the available budget but they don’t think about the business case. Others seem to think it’s a complicated process when it’s not. A proposal doesn’t have to be a detailed, ten-page document, it just needs to state who, when, why, how and where,” he says.

Resellers should work closely with their distributor if they want to know more about their entitlement, says Dasent, and points out that

Renaissance is happy to work with its partners to put a joint case to a vendor.

However Dasent admits that as margins have been squeezed there is less funding available than four or five years ago.

“Also, because New Zealand is such a small market, there’s really never enough money to go around. That’s why Renaissance often contributes its own MDF to campaigns and works on joint initiatives.”

For example, says Dasent, Renaissance will take a stand at a trade show and give appropriate resellers time on it.

“Individual resellers just don’t have enough MDF to allow them to do big projects so it makes sense to pool resources and give them access to the sort of initiatives they’ve only dreamed about.”