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Study exposes financial effect of channel incentive program abuse

A recent study by Deloitte & Touche indicates that channel incentive program abuse may be costing vendors as much as $1.4 billion in lost profits annually, CRN reports.

Channel incentive abuse occurs when value-added resellers receive special pricing for a specific customer, but fail to sell all the products to that customer.

Survey respondents – nearly half of whom represented large vendors with more than $25 billion in annual sales and indirect channel models – estimated that up to one-quarter of all channel sales may be affected by incentive abuse.

“A lot of companies … (are) offering up various promotions and discounts, special pricing deals,” Brent Nickerson, a partner at Deloitte & Touche, told the news source. “What we found is those programs are not monitored, not managed, and companies don’t have controls in place to track veracious programs to their partner community, which can lead to abuse.”

Deloitte & Touche senior manager Jana Arbanas recommended that vendors take more responsibility when it comes to creating strong channel program controls that will ensure the correct end users receive the right product at the right price.

Deloitte recommends more education about the terms and conditions of individual programs, as well as stronger terms and conditions for VARs.

“We’re not so much looking to penalize partners but rewarding those partners that abide by the rules,” Nickerson told the news source. “Termination is always an option, but what we find is more effective is encouraging more positive behavior and complying with the agreement.”

In order to deter channel incentive program abuse, Deloitte recommends that vendors develop tighter and more involved program management practices, develop more consistent policies and procedures, better educate channel partners, set up a self-monitoring program to help partners ensure their compliance and establish an increased focus on serial number tracking.

Additionally, Arbanas recommended reevaluating program terms and conditions in order to address any loopholes.

A similar study conducted by Deloitte in April highlighted a variety of different channel incentive abuses. These included profit margin erosion, service and warranty abuse, disruption of distribution channel environments to a non-level playing field across channel partners, negative brand impact, increased presence of counterfeit products, payment of unearned incentives and reduced customer satisfaction.