Making functional compensation work.

The idea that a supplier can build a channel by giving extra rewards for intermediaries who train their staff, or who invest in marketing, is extremely appealing.

But such functional discount schemes are also extremely hard to control. Intermediaries who invest heavily risk being undercut by discounters, who steal the sale at the last moment. And it is very hard to build a system which provides real protection against fraud.

Pennell at SGI summed up the outcome of her workshop: "Everyone agreed that it was a great idea in theory, but those who had tried it have moved away from it, because of these problems."

Several suppliers were trying to move away from a system where functional discounts were agreed on a individual one-to-one basis to a more modular model with a menu of rewards for specific actions. But many delegates felt this would not work, and that the idea of tying rewards to specific programmes was probably a better one.

But the idea of very simple discounts for certain actions remains appealing. Partners could, for instance, be given an extra 1pc margin if they promised to only resell a particular supplier's products. Partners could also be rewarded for achieving pre-agreed sales targets.

Tony Mulligan at Oracle agrees that this approach can work, but adds: "For me, the real functional discounts revolve around things which are really quite hard to measure. Perhaps because of this, such schemes can really not be standardised and have to be agreed on an individual basis. But this leads to much higher costs."

Managing and Communicating Channel Change

Suppliers are good at formulating new strategies but less good, perhaps, at communicating them to their partners.

This event - a mix of presentations and workshops - addressed this issue and was sponsored by Microsoft. Delegates included senior managers from Orange, BT and O2 as well as a host of IT and pharmaceutical companies.

Julian Phillips, now at Orange, kicked off with a warning note. "Managers spend their lives changing things. If life is quiet we have a tendency to get fidgety and alter things which are working perfectly well." He casestudied his experiences at Dell, which spent a year transforming itself into an e-business, developing a raft of e-business services, before quietly returning to what it does best - making and selling Pcs.

Derek Brown at Schering looked at how the pharmaceutical vendor had made extensive internal changes to adapt to a new sales process in which it shared risk with the government for the introduction of expensive, new anti-MS drugs.

The workshop which followed allowed delegates to focus on how to communicate change to particular channels with examples ranging from sacking 30pc of your distributors to moving to a customer-centric subscription model.

The communication theme continued with a presentation from Tony Mulligan of Oracle on How to build log-term relationships with partners over the web. This showcased Oracle's new PRM system which we profile in detail on page 15.

Finally, Phillip Howells presented some research findings showing the true value of trust.