Estimated reading time: 5 minutes
As we’ve previously discussed, the past year has been one of tremendous disruption for traditional supply chains. In the current environment, distributors have found themselves in “adapt or die” mode in order to overcome challenges ranging from supply constraints and a changing competitive landscape, to eCommerce and shifting customer expectations.
One challenge in particular has involved the availability and utilization of MDF and Co-Op funds. From the distributor perspective, many of the use cases for these funds—such as in-person trainings, counter days, trade shows, etc.—have been suspended or limited due to the pandemic. It’s also reportedly been harder for distributors to secure these funds from manufacturers, who understandably have raised the bar when it comes to the requirements for releasing these monies during difficult economic circumstances.
But even in the instances when manufacturers have offered to provide some type of business development funding, it seems that wholesalers haven’t always been able to effectively deploy them. In fact, it’s estimated that, on average, channel partners could be leaving between 25%-50% of these funds on the table when they’re made available. So, what gives?
There seems to be a few explanations for this disconnect between the availability and the spending of these funds. First, some distributors don’t have a sophisticated marketing department that would allow them to effectively utilize MDFs or Co-Ops. These distributors may not have mastered the latest digital marketing techniques, they may not have the manpower to put an innovative strategy into action, or the funds themselves might not be explicitly directed towards the type of marketing these partners are now doing.
Manufacturers might be looking to partner with wholesalers who are aggressively promoting themselves and their products. Without the proper marketing resources, though, these distributors will be unlikely to make use of any funds that are made available, even if they were potentially interested in doing so.
This brings us to another issue widening the funding disconnect: a lack of manufacturer support. In many cases, distributors are looking for off-the-shelf promotions that don’t require much legwork or self-created resources. If manufacturers aren’t providing marketing programs themselves, however, it then becomes incumbent on distributors to promote products which they may not feel any particular loyalty to.
Sure, the MDF or Co-Op funding might be seen as a nice incentive, but when these monies have to be strategically deployed, then diligently accounted for, that’s a lot of time and resources that need to be dedicated to something whose ROI may be murky at best.
A third problem, which isn’t new or directly related to the pandemic but still bears mentioning, involves the often-cumbersome process of applying for funding. In some cases, there could be a complex up-front approval process that ends up serving as an obstacle to adoption.
In other cases, these MDF or Co-Op funds may be reimbursed after-the-fact, through a claims process that ends up further deterring wholesalers from applying. Much like making an insurance claim, these channel partners can’t be certain that they’ll even receive the funds, so why take an unnecessary capital risk unless the returns are clear and substantial?
Finally, the elephant in the room has been the ongoing supply chain issues, which have created ripple effects throughout various channels. By now you’ve probably heard about the price of lumber nearly tripling over the past year, or the shortage of semiconductors affecting nearly every industry. We’ve all watched as the value of our homes has risen 10%-30% in a matter of months. These issues, though, have gone beyond an overheated housing market or a shortage in things like lumber and semiconductors.
For example, when it comes to vendor funding of MDFs or Co-Ops, while suppliers may not want to dole out money to promote products they may not be able to produce, the flip side is that wholesalers themselves may be hesitant to put time and money into marketing products that they might not even end up having. This has been especially true over the past 12-18 months when some distributors have been able to get products based on their manufacturer relationships, while others have not.
Despite these challenges, there are certain steps manufacturers can take to help bridge the disconnect. These include things like:
All of this seems to suggest a more general need throughout the supply chain, which is stronger relationship-building between suppliers and their channel partners. Whether this involves manufacturers stepping up their marketing efforts to better support wholesalers, distributors themselves being more direct in communicating what they need and expect, or some combination of the two, an improved relationship will mean that opportunities and accountability are better understood on both sides, and expectations are clearly outlined from the start.
Looking to help your distributors take better advantage of their MDF or Co-Op? Contact us to find out how a strategic incentive program may be just what you need.