The 4 Engagement Factors for Effective Incentive Programs

Tim Harmon, and I want to thank you for listening in for the next 30 minutes or so on this webinar, you know, the 4 engagement factors for effective incentive programs. You know, there's a lot of companies that run incentive and loyalty programs for their channel partners, their customers, and even their employees. I've found very, very few that are actually satisfied with the effectiveness or the results they get from those incentive programs. You know, on the B2C side, on the consumer side, customer loyalty programs fail about 77% of the time. And while I haven't been able to unearth any statistical data for B2B channel incentive programs, just my work with, with Fjällräven customers, with my clients, and, you know, throughout my time when I was an industry analyst with Forrester Research for 10 years, of speaking with folks like yourself, I wouldn't say that that B2B number is too far off the 77% unsatisfied mark or ineffective mark. So Well, we'll talk through this. I'll be your voice for the next 30 minutes of walking through this effectiveness journey, and hopefully we'll give you some ideas to spur your thinking about what you can do to make your programs more effective and ultimately, you know, return on investment to your company. So we surveyed We surveyed marketing and channel incentive program professionals and asked them, what are your goals with respect to your incentive programs? And the top 3 responses were: number 1, probably is not going to surprise you, is to spur productivity. So they want to, they want to make their channel partners more productive, more successful, if you will. The second most popular response was to generate profit, you know, to that their programs are profitable. And third, third one was to engage, to engage their channel partners. I think a lot of companies are worried about, maybe they don't couch it in terms of partner loyalty, but that's in effect what it is, that they have a lot of partners and a lot of those partners are long-tail partners, right? They represent only a very small fraction of your business, of your channel revenue, channel-generated business, because they only transact with you once in a while. They're not really engaged on a regular basis with, with what you're all about, right? So they're, you know, in essence, perhaps you could call them order takers. So those are the top 3 responses, and, you know, ironically, these 3 things are related, right? There is a formula that, that I crafted a few years ago that I still use today that says that the increase in engagement times the increase in productivity minus your reward costs, your reward program costs, is what's ultimately going to be your profitability. And I'll actually walk you through a financial model you know, at the end of the webinar to give you an idea of how I have substantiated this for, for clients over the years. We're gonna— I'm gonna focus today on the engage things, so the 4 factors to drive engagement. And next month, I'll cover the, the 4 things that you can do to spur productivity, right? Because It's increases in both that are ultimately going to lead in profitability. So we'll cover them, you know, one at a time. Today we'll talk about the engagement factors. So 4 factors to drive engagement. Number 1, know what's worked in the past and what hasn't. And hopefully recycle what has worked and, and don't use what hasn't worked. So that's key. Number 2 is to get creative. You know, it's interesting when I do workshops for customers, they— one of the questions I ask starting out my workshop is, you know, in terms of incentive programs, incentive program design, or incentive program management, you know, what percent is an art and what percent is a science? And it's— I usually get some number like it's 70% art, 30% science, which I wouldn't necessarily disagree with, although I think it kind of depends on the right-brained, left-brainedness of the audience. But, you know, I'm saying know what's worked is obviously going to be a, you know, quantitative function, and to get creative, innovative is to spur that other side of your brain thinking. And we'll talk about how to shake things up, you know, how you, how you should change your incentive program, your incentive strategy on a regular basis, and how often to do so. And then finally, how to amp the partner experience, because there's certainly no shortage of talk today about providing an excellent customer experience. But sometimes we forget that it's every bit as critical to provide a superior partner experience, a superior experience for your channel partners as well. So I said we talk about the, the quant side, the analytics side, and certainly, you know, you can do this. And of course, you know, being a cloud software provider, we have access to some of our customers' data on an anonymized basis, of course. And so we can aggregate that data and see what's working, you know, across a lot of companies and a lot of industries in terms of program effectiveness. You know, the type of program, when it's run, for how long it's run, who it's targeted to, you know, all the attributes that you would think of when you think about making an incentive program effective. And so if you think of your incentive program as kind of an assembly line, where you are running programs and you actually post when it comes in from the field, when it's done, you perform some analytics, hopefully at that point, to see how effective the, the program was and what your ROI was, and you make a choice as to whether to, you know, use some elements of that program, or maybe you will use, reuse that program wholesale again at some point in the future. Or, you know, the program wasn't as successful as you hoped, right? And so, you know, it goes essentially into the recycle bin. And this is a continuous process or should be a continuous process, you know, in your organization where you are looking at the results of what you've done in the past and applying the best of those results and optimizing them going forward. I had the opportunity a few years ago. I always Whenever I had the opportunity to talk with channel chiefs, I asked them, "What kept you up at night? What is your biggest challenge?" And one channel chief that I talked to said, you know, "It's the fact that I have 19 years' worth of data of program history, but it is scattered all over the place in different formats." different software, different databases, and so I can't really tell what has been effective over the past 19 years and what hasn't, although I know that it's there in the data. So they actually undertook a, you know, big, big data warehousing project so they could in fact do just that. So let's go to the other side of the brain, the creative or innovative side of the brain, and see what's up there. You know, and I mentioned at the top that 77% of B2C customer loyalty programs fail, and that through my anecdotal evidence, uh, from, you know, working with professionals like you over the course of the last, um, 10 years, that, you know, they do fail. Uh, and I talk and interview channel partners on a regular basis as well, channel partner companies, so resellers, dealers, MSPs, systems integrators, you know, ISVs. And, you know, I— these are the typical responses, you know, that I get, and they're gonna be familiar to you, I'm sure. So there's too many programs, right? I have to wade through lots of different incentive programs to find out the one that's really applicable or the one that I should be focused on. They're too repetitive. They're stale. They're boring. Right? There's no change. I mean, they're exciting maybe in the beginning or engaging in the beginning, but, you know, after a certain amount of time, it's the same thing over and over again. You know, I tend to lose interest, right? They're complex. We've heard that, right? Um, that, you know, you can take the rules engine to a degree where perhaps the, the, uh, all the rules associated with how a channel partner might qualify for a reward or benefit just becomes too complex for them to figure out, so they just throw their hands up in the air and, uh, and say the heck with it. Or no demonstrable ROI. And I think this is key, one that's underserved, because channel partners want to know that what they're doing for you in the terms of what you're asking to, to, for, in, for them to get a reward has an ROI associated with it, right? You know what that ROI is of your incentive program. You should share what those are, your expectations with your channel partners, with your incentive program members. So, another thing I'd like to do at the workshops that I do is to get people to think outside of the box, right? You've probably heard that expression, think outside of the box. Think outside of the 9 dots is another metaphor. But it is because incentivization and incentivization theory has been so ingrained in the tech and manufacturing industries in particular for so long that there just hasn't been much change in that aspect of channel enablement, channel partner enablement. And, you know, as a result, what's happened is that a lot of incentive programs tend to start looking alike. Right? It's very hard to distinguish. And, or else there's too many or they're too complex. So you've got to take this, this approach to start thinking about what can you do differently? Right? Because just like, you know, technology is constantly changing, so are customers' and partners' expectations and skills. Those are changing constantly as well. And so your programs need to change along with them. Let me just give you a few examples from the workshop. I won't go certainly into all of them, but I'll give you a few that have been particularly effective for some of our customers. So one is the— this notion of using a time-based program. So, you know, instead of saying, you know, we are going to run this program and it's going to run for 1 quarter or for 2 quarters or maybe for the full year, we're going to run a program that doesn't necessarily have an end date associated with it. We're just going to start the clock at the beginning and let you, the channel partners, you know, tally up your points or your, you know, your reward currency you know, as fast as you want to, as fast as you want to. Let me give you a couple examples. One of the, one of the performance models that we support is called the race model, right? So you give, you give your channel partners or your sellers a goal, $10,000 in total sales. And you know what you do is then you, you pick a start date, right? And you know, the first seller to reach 10,000 gets the most number of points. The one— second one to reach 10,000 gets the second most number of points, and so on and so forth, right? You can have 3, 10, 100, 1,000, however many, you know, sellers or channel partners that you want to participate in a race type of model. Here's another one. I call it front-loaded or countdown. So let's think of that same goal. First one to achieve $10,000 in sales— or it's not the first one, it's just you achieve $10,000 in sales of a particular product, right? And so, you know, on day 1, if they do day 1, they earn 500 points, right? But, you know, and then each day that goes along, uh, it's decreased by, you know, perhaps, uh 50 points or 10 points or whatever. And as soon as they achieve that target of $10,000 in sales, the countdown timer stops and their points are calculated and allocated based on the number of days from day 1 that has elapsed. And so in this case, the seller, the channel partner, has won 240 points. So time-based is one element, one type of gamification technique that you can employ and should think about because it just creates a tremendous amount of energy for your incentive program. Here's another, another gamification technique, if you will, right? Most companies will reward in their incentive programs either the individual, the employee, or the salesperson or the company, the channel partner company entity, right? Or perhaps both, right? And that's great, but there's another entity as well that you can also target with your rewards, uh, reward point mechanisms, and that's teams. So a collection of individuals, you know, within a company, or it could be a collection of individuals across companies, right? These teams are whatever sort of logical teams that you may choose to, to define. One of the great things about targeting teams for your programs is the fact that they obviously inspire collaboration. You think about it, you know, you have a team of 3 or 4 or 5 or, you know, 8 individuals. You know, if they're all working towards the same goal, they are going to spur each other on to do as much as they can. The other thing is that it spurs competitive gamification, right? So, you know, again, just by the law of numbers, instead of competing against maybe, you know, 500 other individuals, I'm competing against 50 other teams. That's more realistic and will wind up resulting in better competition and gamification results. Here's something else that you could do: create qualifying programs. So if you're a sports fan, you know that most sports franchises use some sort of qualifier to get into a championship series. So oftentimes they'll use like the regular season You know, and depending on how well you perform in that regular season will determine whether you get into the qualifier championship playoff series or not. Right? I've used here as example NASCAR, not that I'm a NASCAR fan, but I just think they have a very interesting type of points model that is potentially applicable to, you know, what you might be doing. So you can see that in the lower left, they have a number of regular season races. And for each race, they get a certain number of points for how they perform in that particular race, right? So they have some very interesting things that they do. So, you know, if you lead a lap, you get— lead any lap, you get an extra point. If you're the— if you led the most laps, you get another extra point. But what I wanted to point out here was that At the end of the regular season, which can— is comprised of 26 races, um, the total points are calculated, and those top 10 plus 2 wild cards are in the Chase Cup, the championship playoff series, if you will. And that's where the big money is, right? And so you have a lot of incentive for drivers to do very well in the individual ones, and they are not necessarily— because if they do poorly in one race, it doesn't mean that they're out. They can make up for it by doing well in another race. They have 26 opportunities, you know, to, uh, to, uh, show what they're made of and try to qualify for this championship series. Let me show you what this might mean in terms of you know, incentive programs. So let's say you have an incentive program that, you know, in— that you run for Q1, and, uh, the goal is 300 points. And so the points you need to qualify for this Championship Series or this championship program, which you're going to run in Q4, is 300 points. But, you know, they may not make it. Not everybody makes the 300 points in Q1. So you have a second program in Q2 in which you can earn 400 points. And so now, you know, if you do— if between Q1 and Q2 you do a total of 650, so you maybe you fell a little bit short in Q1, but in Q2 you made up for it again, you can qualify for that Q4 championship. Program. And likewise, Q3, you know, the max number of points you can accumulate is 350. And again, so you can qualify in either Q1, Q2, or Q3. And on Q1, you don't have to work any further because you've already qualified for that Championship Series, right? But if you didn't, you can make up for it in Q2 and Q3. This is actually a real-world example that one of our customers has employed to, uh, to great success. Wanted to give you another kind of idea of a concept called developmental sequencing, right? So if you are incentivizing different behaviors with the goal of developing the maturity of your channel partners in some particular function, whether it be customer service or marketing— this is a marketing example— or, or some other capability, then you may want to do this in stages, right? Where you, you know, at the, the last stage is kind of where the, you know, the, the rubber meets the road, right? It's the, your leads incentive program. We're incentivizing for them for the number and quality of leads. But if you back up from that, and say we really want to run an incentive program to— that with the intent of helping you develop your marketing skills, your marketing capabilities, we'll start off with a training incentive, right, in Q1, right? And if you qualify, uh, meet the qualification criteria for that marketing training, then you can participate in the campaign incentive in Q2. And as long as you meet the campaign criteria in Q2, then you will qualify you for the MDF utilization incentive Q3. And finally, on leads incentive, and see what you've done over time, you've actually built up different marketing skills or competencies in your channel partner. So the time you get Q4, they should be fully operational, fully equipped in terms of being able to generate those quality leads. Let's talk about how to shake things up, because you may recall at the beginning, one of the things that, uh, when we interview— when I interview channel partners, they say it's just too repetitive, it's too boring. So let's— how do we— how do you shake things up? Well, first of all, let's look at the, the problem. And I've seen lots of companies that will run incentive program after incentive program after incentive program, all of which reward revenue. Now, is an incentive program— are 20 incentive programs that are run serially quarter by quarter that reward revenue, is that an incentive program? Or does that just become something that's baked in, right? And, you know, it's been proven by behavioral psychologists that, you know, anytime you put a new type of incentive in front of an individual or a company, that they'll be charged at the beginning, but their attention and their interest wanes over time. And in fact, that's what I saw, seen happen over the years is that when you do the same thing over and over and over again, it tends to produce smaller and smaller return on investment with respect to your incentive program budget. You could change things up, should change things up, where you are incentivizing different activities or different behaviors. And in fact, the opposite is shown true when this is— when you employ this sort of thing, you know, because you are, you know, consistently, you know, putting something new and fresh in front of them to be thinking about. The, the other reason that you may want to change things up is because, you know, many of your channel partners may not be good marketers. You might want to have an incentive program that is designed around rewarding good marketing behaviors, and ultimately getting good marketing results. At some point, you're going to mature your channel partners that weren't very good at marketing to be very good marketers. At that point, it's time to move on to a, a different type of incentivization strategy. And I wanted to talk with you too about something called the Hawthorne Effect. So The Hawthorne Effect is named after a company that was operating back in, I think, in the 1920s called the Hawthorne Works. It was the company— Hawthorne Works was a manufacturer of telecommunications equipment based in Illinois. And like perhaps other factories at that time, it wasn't really a great place to work physically, right? I mean, it was, you know, it was old, it was an old building, the, you know, it was kind of dingy, the lighting was dim. And so they, the company brought in a behavioral psychologist and said, we need you to, you know, tell us what we can do to increase productivity. And so what the behavioral psychologist did was said, we'll run a test "we've noticed that the lighting is really dim and it kind of creates a dingy, depressing type of workplace. We'll actually increase the lighting." And they did that. And 30 days later, they did their test for the results, and they found that there was an increase in performance. They said, "Wow, that's really good. That's what we were hoping to get." But scientists as they are, They decided to increase lighting just a little bit more, and 30 days later, they took the, the results, and lo and behold, performance increased again. Okay? So just to validate their original hypothesis, you know, they always have to go back to the control. So they decided to turn the lighting back down to the original dim level that it had been at the beginning. And what do you think happened? Yes, performance increased. Now, they made some conclusions, or actually couldn't come to conclusions about the study, and so they actually wound up throwing all the data away. They didn't throw it away, they actually put in a file cabinet somewhere because the data was found about 30 years later in the 1950s by a behavioral psychologist named Dr. Edwin Mayo. And Dr. Mayo studied the results and said they came to the wrong conclusion. It wasn't the brightness of the lighting that impacted productivity, it's the fact that lighting changed. Whether it changed for the brighter or whether it changed for the dimmer, it's just that it changed made them more productive, right? And so I found the same thing to be true in channel incentive program strategy that I've either, you know, counseled for or done myself over the course of, you know, many years, that sometimes just making a change in itself will spur, you know, productivity. So, how long should a program run? I often get asked. You know, I think the ideal time is 3 to 6 months. Quarter or two, certainly no less than a quarter, because you need it to be long enough to collect data, right, and long enough for, you know, the incentivizee to understand and start to perform according to, you know, how you want them to do to achieve their goals, right. And yet short enough to keep people interested, right, because after 6 months, again, their attention and interest is going to start waning. And you should also use the Hawthorne effect. You want to change up their environment and change rewards or incentives on a regular basis simply because change itself is a, is a good thing and can spur productivity in and of itself. The fourth factor, and certainly not the, not the least, is the partner experience, right? So I mentioned at the beginning how important or paramount today the notion of providing a great customer experience is for companies, and they're really focused on that. So I'm going to talk about what you can do to amp the partner experience. There's data that backs how important this is, right? You've seen it, um, you know, marketers, channel marketers, channel incentive professionals, you know, whether whoever it is that's being surveyed, you know, will, will say that they are getting measurable, significant improvements when they take a personalization approach to what they're doing through their marketing programs or their incentive programs. That can cut, you know, acquisition costs and increase their, their spend, the effectiveness of their spend, by as much as 30%. So some really, really big numbers if you do take a personalization strategy with respect to your incentive programs. That means you're not going to run an incentive program for all of your channel partners. No one program is going to be for all your channel partners. You're going to segment your channel partner companies into that, into segments, and run individual programs against individual segments. I mentioned a marketing program, a marketing incentive program. You may not want to run that program to companies that are already really well-vested in marketing. Right? You may want to run programs that are only specific to a specific geography or programs that are specific to your small partners or just those to your large partners. Right? Or those with a specific technical certification that they've achieved. And I don't want to underplay the, the, the, the approach, the, the lack of responsiveness that companies get in an approach that uses an email and spreadsheet to communicate to their partners about their incentive programs that they're expected to participate in. Right. So month after month, it's email with, you know, a spreadsheet report, email with a spreadsheet report. There are a lot of companies that still operate this way. They are enabling two-thirds of their revenue. I use two-thirds because channel-generated revenue represents two-thirds of the world's GDP worldwide. And it's It's always amazed me in a dismayed sort of way that companies will still use email and spreadsheets to communicate with and enable and manage their channel partners and their channel partner programs, right? So spreadsheet partner experience, you know, an oxymoron. You know, what you want to do is to take this, the concepts of partner experience and digital transformation really, and combine them and create an experience for them in the partner portal that is going to be exciting for them to engage in, right? So here's an example from, you know, one of our customers. And by the way, you know, Fialo is Salesforce native, so we operate inside of Salesforce Community Cloud, right? It's kind of a native element of all the other things that are delivered via Salesforce Community Cloud or Salesforce Partner Communities to their partners. You know, all of the incentivization, aspects of the partner program are also represented in the portal as well. Right? So they're not, it's not single sign-on. They're not going to a different tab. It's all right there as one common experience, whether it's, you know, the, content download that they get from their regular PRM system or, or applying for MDF or registering a deal or for participating in training incentive programs. Here's another example. New Roots, an agribusiness company, if you will, and you can see on the left again, we have built in the incentive program into the overall experience, right? So they've got a dashboard. To see how they're performing in terms of their incentive program, you know, what they've been doing, the total number of points that they've accumulated so far, you know, according to the goal. And, you know, down the lower right, there's Salesforce Chatter, right? And so you can see that again, it's one common experience for the channel partner, you know, that which, you know, intertwines their participation in an incentive program with everything and anything else they might do as a channel partner with you. Here's a third example, right? James Hardie, a, a building materials manufacturer. And so you can see again, some of these things are, you know, very applicable to, you know, at the top, they've got 3 new leads. So they're getting information as a result of their Salesforce Community Cloud capabilities about what they're, they're being delivered leads via there, but along the bottom they're being able to weave in that important part of that, of that engagement, i.e., their participation in their incentive programs front and center in their digital experience. And here it is, the same thing, but here James Hardy has introduced a program specifically for 2020 right, which allows them to check out, you know, what's coming down the pike that they may be interested in participating in next year. So I promised you at the beginning that I would show you a financial model that I've worked up with respect to engagement and productivity, the boost, the increased engagement, increase the productivity So there are two, two columns here. One is the current, so I'm assuming that the current incentive program model or incentive program is in place, but it's not delivering great results. It's become stale, if you will. Although you may think a net revenue uplift, if you look down towards the bottom, $71,000, it might be pretty good. But What you get, and this is data that has been derived from our customers. Right? And I've tried to be conservative in that data. And what you get from providing a different approach, so how can you increase productivity? And I'll talk about that next month, but you— our customers do see a significant revenue uplift in their channel partners with the incentive programs that they create. What I talked about today is engagement. Engagement drives bigger participation, right? And I here am using an increase of 45%, but we've seen increases of 50, 60, 70, 100% So again, I've tried to be, you know, pretty conservative. And you can see that the result is not $71,000 in terms of net revenue uplift. It's $1.1 million in net revenue uplift. And so just by, you know, tweaking these two levers, you know, what you can do in terms of engagement and what you can do in terms of your incentive program to drive productivity higher is going to be, you know, exponential in what you get in terms of your return on investment. So I talked about the analytics side, you know, the ability to use analytics capability to understand what has worked and what hasn't worked. And to, you know, separate the wheat from the chaff so that you can use the, you know, what has worked more effectively in the future to affect this continuous incentive program improvement. Talked about innovation, right? And I gave you some examples of some of the things that our customers are doing with respect to innovating their incentive programs, from time-based programs to qualifier-based programs, right, to just a multitude of others that you could employ. We talked about change, that you, you know, to run one program, just one universal program and not touch it for a couple of years probably doesn't make sense in terms of the channel ecosystem, right? They might respond very positively in the beginning, but you're going to see that again, their interest and attention is and their productivity is going to wane over time. And then we talked about the digital experience, the digital partner experience, and how important that is and how important it is as a factor to drive, you know, your ROI in terms of higher, in terms of what you're getting for your investments in your incentive programs. So with that, We'll go to Q&A, and I have been getting some questions as we've gone along. I'm just checking, checking the questions that came in through chat. And here's one question. The, so, Tim, do you, does your, does your products with respect to With respect to your, your product and analytics that you talked about at the beginning, does your product support machine learning? The answer is we are very active in R&D and engineering right now in building our machine learning capability, and we're working with a handful of our customers really on an alpha type of basis. So we're using our customers' input so that when we do come out with our machine learning capabilities in 2020, that it will have been with that customer stamp of approval that this is exactly what it is that they need and what will work for them. Okay. And here's another question. Is it ever okay to have a forever running program? Now I am going— so I'm gonna see that was to my comment that you don't wanna run programs for too long. That, you know, you have the ability, and there are, you know, there are tech vendors and manufacturers that, you know, any one point in time will have, you know, a dozen or dozens of, you know, incentive programs in the field to their channel partners, right? That might be a notion that's too many unless those dozen incentive programs are targeted to a dozen different segments. But the, I think there are two examples that I can think of where a long-term, a long-running program makes sense. One is your tier or your level program, right? So there may be some things that you want them to do and the benefits or the points are going to accrue to their level points. In other words, you do these things and you may get points towards some sort of reward. You may also get points towards leveling up from silver to gold, and that's obviously a long-term program. The other example I can think of is, um, and is, um, bundling promotions. So you may have some sort of incentive that rewards a seller for combining two products or combining a product or service or product and a warranty together. And whenever they make that combined sale, you know, they're going to get, you know, an extra, an extra boost. So I think that is another program that you know, makes sense to, to run on a long-term basis as well. So with that, I'm going to, to cut off here. If you have any more questions, you can reach out and email marketing@fielo.com or tim.harmon@fielo.com. Be more than happy to address them. And, you know, if you want to learn more about Fielo, check us out at fielo.com or email us at marketing@fielo.com about how we are, you know, providing the technology platform to enable the types of things with respect to engagement and productivity that we've been talking about in this webinar series. So thank you very much, everybody, and have a great rest of your day.