Posted by
George Kriza on
September 28, 2010
So you’ve got a Spiff program and a barn full of products to move. What next? Lot’s of manufacturers jump into the spiff promotion with both feet, spiffing everything that isn’t nailed down. Is that the best approach? Or are there other approaches that can yield considerably better results with the same budget dollars?
First, it pays to give yourself a little time to consider your business goals before putting a pencil (ok a spreadsheet) to designing your program. What’s important? Here is a list of things that MIGHT be important to you:
- High margin products / low margin products / strategic products
- End of life products / new line introductions / new premier products
- Rewarding volume sales
- Rewarding product education
- Growing the customer base
- Selling follow on products to the installed base
- Selling more products at the time of the initial sale
Other considerations might include:
- How do I fund my spiff budget?
- How do I keep my program fresh?
- What can I do to gain rapid market adoption?
- How can I rise above the noise?
Lots of considerations and questions… so we’ll throw out a few ideas to get you thinking.
High margin products / low margin products / strategic products
Every company has products that are money makers, and others that it simply has to carry to complete the line, yet others to attract end users or consumers attention. Sell up, sell down, give the buyer somewhere to go to find just what they need. Great, but how does that play into a spiff strategy?
We can assume that you have good data on the selling rates of each sku in your line, cross checked with the manufacturing schedule and product availability. All things being equal, if products with low and high margins are moving at the same rate, it would seem reasonable to spiff the higher margin products with a larger dollar amount than the tight margin pieces. The only exception to this is when you’re in a market share battle, in which case you might want to hit the “market maker” products with the biggest spiff dollars to make sure you are perceived as a leader in the category.
End of life products / new line introductions / new premier products
Where a product is in it’s life cycle may be very meaningful as to the spiff strategy. Some products at end of life may need to be blown our. In many cases, until the old inventory is gone from reseller inventories, new product introductions may have to be delayed. If old products are in inventory, they become rapidly stale. Especially in technology, Moore’s law is alive and well. And dead inventory can only go two ways… swapped for new stock (particularly ugly) or less onerus but still ugly, price protection. Manufacturers that maintain healthy reseller groups (channels) always take care of them, so these are real problems. The better answer is balanced promotions, including POS spiff promotions, to regulate the flow of inventory through the channel, accelerating adoption at time of introduction, accelerating liquidation at end of life.
Rewarding volume sales
Almost every manufacturer wants to cultivate large customers. Unless you are boutique product line, this is generally true. So, do you want to pay the same spiff amount per unit on a large sale, more, or less?
If you answered yes, that may be valid, but it doesn’t encourage large sales. If you answered yes, you may also be a beliver in capping the maximum spiff. Not motivating, but their may be a business case for it. On the other hand, you may believe that a larger sale should merit a higher per unit rate. Whatever you believe, the answer is not a one size fits all spiff rate. The answer lies in Tiers or Plateaus, which are not the same thing. And even after you understand the difference, there are complexities in their implementation.
Tiers are defined as defined levels where rewards change. For example
1 or more units: $5.00 each
5 or more units: $6.00 each
10 or more units: $7.00 each
25 or more units: $10.00 each
250 or more units: $12.00 each
Plateaus, on the other hand, might look like this:
1-4 units: $5.00 total
5 -9 units: $9.00 total
10 – 25 units: $25.00 total
25 -250 units: $40.00 total
250 or more units: $500.00 total
In the latter plateau case, you would use your strategy to control the maximum payout so that it would not be unlimited. By declaring it this way, you are way ahead versus summarily instituting a cap when some salesperson knocks it out of the partk unexpectedly. By the way, they largest spiff we have ever paid on one sale was $300,000.00. And the sponsor never at any time tried to reneg on the program. On the other hand, if an outcome like that is not welcome, a plateau program would keep it under control.
Rewarding product education
Salespeople sell what they know. Spiff them for taking quizzes that build product knowledge. It absolutely works.
We’ll continue this theme in our next blog post. Thanks for dialing in to the Spiff Riff!
