Incentive Programs Give Back To VARs, But Do They Really Drive Loyalty?

Instead of being heavy-handed, distributors can encourage purchases by upping the ante with incentive programs. These come in various forms, such as rebates and points for volume purchases that can be redeemed later for prizes. The idea isn't revolutionary, and just about every industry has some way of encouraging more purchases.

Nevertheless, for many distributors, incentive programs are a crucial part of encouraging customer loyalty; others see it as more of a way to give something back to solution providers. For example, Ingram Micro announced an incentive in February for solution providers who sold at least $5,000 worth of supplies and accessories from at least half of the group of 10 sponsoring vendors during a six-week period. Four customers (two VARs and two corporate solution providers) won a $1,000 credit memo in a drawing.

D&H Distributing also has been using incentive programs to encourage SPs to do more business with it. Recently, the distributor announced "Spincentives," which rewards solution-provider purchases with points, or "chips," that can be redeemed for prizes (see "Spincentives Up Close," above). The program coincides with the company's 85th anniversary this year, and qualified solution providers automatically get 85 points just for being a customer.

"It's our way of thanking solution providers for years of support and business," says Dan Schwab, D&H's vice president of marketing.

Spincentives' mechanics are straightforward: For every $10 spent, SPs get a point, which can be turned in for a gift certificate or used to gain even more points by spinning a prize wheel. Through Spincentives, the distributor expects to give back to solution providers between $50,000 and $100,000 each month, depending on purchase volumes.

"Spincentives%85does look interesting," says Don Brabham, president of Angel Computer Systems, a Tacoma, Wash.-based solution provider, who sometimes passes on prizes, such as gift certificates, to his employees as a reward for outstanding service. "I just haven't decided at which level to spin."

The Flip Side
Granted, just about every distributor offers some sort of rebate and prize from vendors for product sales. And, of course, every solution provider could use more credit. But some solution providers say product-based rewards aren't enough to encourage them to buy a specific product or even buy more of the product, unless the incentive is a rebate that lowers the price immediately.

What's more, all things being equal, it might be difficult to prove whether incentive programs really sway solution-provider purchases--just as it's difficult to show a correlation between incentive programs and the bottom line. But consider this: With its incentives programs, D&H announced 2001 sales of $700 million, up from $560 million the year before.

Incentive programs, however, can only draw so much solution-provider loyalty, Angel Computer Systems' Brabham says. He believes there are other distribution services that are more important, such as a good relationship with sales representatives, quality technical support, competitive pricing and product availability. And he gets those from D&H.

"Of the major distributors out there, they're the only ones we enjoy doing business with," he says.

In addition, Brabham says an incentive program would not cause his company to change distributor relationships, switch brands or purchase products it doesn't need. "I very seldom would make a decision on what product I would buy based on an incentive," Brabham says.

The exception to the rule for Brabham would be an incentive on a product he regularly purchases, where he might consider purchasing additional quantity to get a price break.

Bob Stegner, Ingram Micro's vice president of channel development, agrees that distributor incentive programs aren't the be-all and end-all for solidifying relationships with solution providers.

"You must earn loyalty, and you can't do it overnight. Incentive programs don't build loyalty," Stegner says. "Ingram Micro is focused on building and sustaining long-term customer and vendor loyalty. And earning that loyalty starts with respecting and understanding each other's business models. That is the core of successful partnerships."