Deloitte & Touche Study Reveals Channel Incentive Program Abuse

by: Nichole Gunn August 3, 2011

Schemes and abuse seem to find their way into all facets business, even channel incentive programs. CRN reported on a new Deloitte & Touche survey that demonstrates vendors may be losing up to $1.4 billion annually in lost revenue because of channel program abuse.

This type of abuse happens when partners (value-added resellers) are given discounted pricing for a particular customer, but then neglect to sell all the services/products to that customer.

The survey revealed that respondents estimated 25 percent of channel sales are at risk of incentive abuse. Just about half of the participants consisted of large vendors with yearly sales and indirect channel models of over $25 billion.

Deloitte & Touche partner Brent Nickerson explained, “A lot of companies … (are) offering up various promotions and discounts, special pricing deals" He added that “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."

Jana Arbanas, senior manager of Deloitte & Touche, suggested that vendors should create and maintain effective channel program controls. These controls should be designed to ensure the ‘right’ customer (end user) actually receives the specified product at the agreed upon price.

One strategy to help ensure this process, according to Deloitte, is to provide sufficient training and education in regard to the terms and conditions of particular programs. There should also be stronger and more clear-cut terms and conditions for value-added resellers (VAR).

Nickerson noted, “We're not so much looking to penalize partners but rewarding those partners that abide by the rules" He went on to tell the news source that while termination is an option, “what we find is more effective is encouraging more positive behavior and complying with the agreement."

Deloitte advised that to combat channel incentive abuse vendors need to create tighter and more complex management protocols. Other strategies that will help curtail abuse are: initiate policies and procedures that are focused and consistent; establish a self-monitoring program that will aide partners in complying with policies; enhance serial number tracking focus; and provide more effective channel partners training.

In addition to this, Arbanas advised to establish a program and conditions reevaluating process that will allow the company to find and address loopholes and problem areas.

Results of an earlier study that Deloitte conducted demonstrated that channel incentive program abuse comes in a variety of forms, including: warranty and service abuse; negative brand affects; decline in customer satisfaction; unearned incentive payments; decrease in profit margin; and a rise in counterfeit products.