An Expert View from Industry Leaders
The role of channel is critical for companies in the high-tech manufacturing industry, and the complexity and criticality of the channel magnifies in the semiconductor and electronic component segments. To grow topline revenue, it is well known that manufacturers leverage channel incentives as a tool to motivate channel entities and partners to collaborate in go-to-market activities efficiently. I will summarize my top three observations from the various conversations I’ve had with high-tech industry leaders and Model N customers who are driving strategic channel partner initiatives.
New dynamics are changing the role of channel incentives and partner engagements in semiconductor manufacturers’ go-to-market activities:
- Pressure to reduce costs via SG&A and OPEX
- Maximize the value capture from channel investments
- Develop deeper understanding about end-customers
Pressure to reduce costs via SG&A and OPEX
Even though the semiconductor industry is expected to have double digit growth in the next 1-2 years and stock market valuations are all-time high, all manufacturers are experiencing a have huge pressure on reducing sales and marketing related expenses and other associated operational expenditures. Due to multiple macro-economic factors such as high interest rates and geopolitical risks, manufacturers are trying to build cash reserves and there is an expectation that growth can be managed without increasing any spend. In this way, manufacturers must continuously find new efficiencies and effective ways to manage channel sales operations. This means, reviewing spend on channel incentive programs, type of incentives offered, measuring criteria, governance processes, and the systems and tools used to manage the end-to-end channel incentives. This audit process is playing a critical role in the reduction in sales & marketing related expenses.
Since every dollar saved from channel incentives systems can directly add profit to the bottom line, manufacturers who build mature channel incentives systems and processes can 1) minimize the revenue leakages while not impacting the partner experience and 2) manage the expected growth.
Maximize the value capture from channel investments
Channel partners continue to play significant roles in marketing, selling, and servicing the products, which has a big impact on revenue and market reach. Channel impacts revenue generation for all semiconductor and microelectronic industry players ranging from 20% to 50%.
Most manufacturers I spoke to believe that they have a lot of potential to increase the value captured from their current channels. They also understand that decreasing distribution margin as a strategy does not work in the long term to maximize value capture. They want to focus on developing mutually beneficial partnerships and create a long-term win-win situation. Having a comprehensive channel incentive strategy based on product, region, and go-to-market objectives plays a crucial role in meeting this objective. The collaborative channel approach to create and support incentive structures also plays a critical role in maximizing the value captured from the channel.
Develop deeper understanding about end-customers
Most manufacturers already collect point of sale and inventory data from their channel partners and use this data to validate and facilitate incentive payouts. The goal is to develop a deeper understanding of their end-customers and in turn understand how specific end-customers’ requirements are changing by region and by product. Manufacturers need new capabilities to collect more granular data throughout the channel sales process (from design registration to transaction).
Manufacturers want to collect additional data attributes from their channel partners so that they can maximize the total deal value by expanding the footprint of components sold and create incentives that help channel partners maximize their returns. As an example, based on product usage data or data on other components used in a final product, you could create a new incentive to drive purchase behavior/demand for your product’s preference or usage over the competition.
In summary, channel incentives continue to play a crucial role helping manufacturers to achieve both top line and bottom-line expectations in this complex, dynamic macroeconomic environment. However, the complexity of incentives structures and the data that is needed to manage the end-to-end process is growing. Manufacturers who have efficient, effective and flexible channel incentive systems will have a competitive advantage over other players.
Model N has helped several leading manufacturers with its incentive management solutions for channel programs like rebates, MDF’s, and more. To learn more about our complete offering for the channel, check out our Channel Cloud for High Tech.
