A Lot of Life, Value Left in Channel Program Tiers

An ongoing debate among channel strategists and managers is whether we can do away with partner tiers, those tried-and-true mechanisms for segregating and incenting channel partners based on performance. A growing number of channel executives feel tiers are constricting to their operations. And some see the need for tiers dissipating with the advent of new partners and go-to-market models.

The reality: Assertions that partner tiers are dead (or dying) are grossly exaggerated.

Many channel executives see tiers as essential, especially since vendors are required by law to treat like groups of partners equitably. (Think the Robinson-Patman Act.) Vendors simply can’t make exceptions for a few companies because they like them better or want to treat them differently than their rank-and-file partners.

Through tiered channel programs, vendors create graduated levels of rewards, incentives, and benefits that – in theory – encourage partners to deliver results in the form of sales and revenue. If a partner wants better discounts, support, and resources, it needs to step up. By delivering greater levels of program compliance, partners unlock the door to a better relationship with their vendors.

The problem is that tiers create complexity. If a vendor operates a monolithic channel program in which all partners are classified essentially the same, they can create two or more tiers that spell out performance and compliance expectations relative to varying levels of benefits. However, if a vendor operates multiple programs that cater to the distinct needs of different types of channel partners, the number of tiers multiplies. That multiplication results in greater operational complexity and cost. And cost is one of the greatest enemies of a channel chief.

Even in monolithic programs, channel chiefs feel tiers are too constraining because of their arbitrary nature. Essentially, every program with tiers has big signs like those at amusement parks: “You must be this tall to ride the double-looped rollercoaster.” Channel chiefs loathe telling good partners that they can’t be Gold because they didn’t make their sales quota.

The answer, some say, is a point program. Through point systems, partners unlock benefits based on a series of activities and accomplishments. If a partner wants more marketing resources, it must earn a certain number of points through the marketing program performance criteria. If a partner wants better access to technical support, it must earn points through technical training and certifications. And, of course, a partner must earn points through sales activity and revenue generation if it wants better discounts.

In theory, a point system would give vendors greater ability to shape partner behavior. Let’s face it: Many partners treat the criteria for maintaining a given tier status as a checklist. So creating a point system – especially one that specifies the frequency of activities – will compel partners to remain engaged.

And some people will argue that new partner types – marketing agencies, business professional services firms, and non-IT manufacturers, for example – aren’t interested in channel programs or earning status in program tiers. They just want access to resources and enablement that will allow them to leverage a vendor’s technology and support.

The problem with those theories is that they ultimately ring hollow.

Point systems are great for stimulating activity, but not every partner will work across every point track at an equal pace. And the nature of vendor executives will lead them to shower the most attention on those partners that max out on revenue and related point categories, essentially creating a tier.

Let’s go back to the point theory and play a game of “what if.” As the argument goes, partners unlock discrete benefits through their investments in certain activities. What if a partner unlocks only one category of benefits – marketing or technical support, or product access, for instance – but doesn’t produce revenue? Is this a “good” partner? It’s a simplistic but plausible example.

In describing point programs, people often treat them as binary: A partner either does or doesn’t unlock a benefit or access. Would that actually happen? Wouldn’t it make more sense to say a program operates on a 1,000-point scale, with partners earning different benefits for different levels of access? Case in point: A partner that earns 400 points may get access to special marketing resources and market development funds, while a partner with 800 points may earn access to the marketing concierge program.

So, essentially, all point programs result in the establishment of tiers.

Where a point system does have the power to reinvent channel programs and partner performance is through gamification. By creating transparent point programs, vendors not only give partners another means of earning access and status but also create more competition among peers to perform better. In conventional tiering systems, partners know the level at which their competitors operate but not how they reached it. Through points and gamification, partners can see relative peer performance without compromising sensitive information.

Point systems can make tiers more flexible too. The argument made by point-system proponents is valid: Giving partners the ability to earn points in different ways gives everyone flexibility. The points may lead to tiers, but the path partners take to earn points to those tiers can differ.

Channel executives and strategists shouldn’t be so quick to embrace the erroneous reports of tiers’ death. Rather, they should look at new and fresh ways of reinventing tiers so they can continue to serve their intended purpose of molding behavior and incenting partner performance.