The Case for Spiffs — And Why Some Still Cry Foul

George Kriza

By George Kriza, Founder & CEO, MTC Performance

As the president of an incentive company, I periodically encounter dealer, retailer or even reseller owners who strongly oppose spiffs. They are not in the majority, but still, there’s a consistent wing of the channel raising objections.

Do I find validity in their arguments? No. When used and managed effectively, spiffs are still a powerful tool to motivate, excite and drive sales as well as enhance overall business results, including profitability. Still, the common objections raised to spiff programs are worth a look. They include the supposition that salespeople everywhere lose all sense of ethics and customer satisfaction and, to make a few extra dollars, are happy to sell the “wrong” product. Others maintain that spiffs can work against a dealer’s investments in training and its inventory position and undermine key manufacturer relationships.

Let’s see if these objections hold any water.

One interesting theory, which might happen periodically, is that a salesperson will sell the wrong product to get that incentive. This is a self-correcting problem because any such salesperson’s tenure will be short-lived — clients will likely not be repeat customers if their business needs are not being satisfied. Yes, dealer management should take an interest in defining the limits of acceptable solutions and approving sales configurations. But if the solution actually does the job for the customer, where exactly is the issue? The fact is that it’s a rare product that has no valid competition. Typically, a customer has so many roughly equivalent choices that confusion is the most likely end product. At least a spiff adds some focus for salespeople as they being to guide the buying process.

Given many potential products to sell, the issue cascades to an entirely different set of drivers, ones the dealer is very invested in. Margin is one. Most dealers I know are interested in maintaining the largest possible margin while not losing market share. It’s a delicate balance: Who controls pricing in the dealer? Likely it is the confluence among management, sales and consumer influences. But each dealer always has the right to determine how low it will price any particular sale, whether solution or commodity. And the dealer also has the right to control which brands it will sell, which models it will stock, and other important factors. There may be occasions where the salesperson makes a greater margin than the dealer (when you factor in the spiff), but this is rare, and if the dealer proactively is managing pricing policy and has professional salespeople who sell a true value-added solution that is properly structured and marketed, it should thrive.

Sometimes the dealer principal will ask the manufacturer to just reduce the price, allowing the dealer to highlight the product and take it to the appropriate target market. From the manufacturer’s point of view, this will never accomplish the same objectives as a spiff. Why? Because a price cut will not inherently influence the number of times the product is presented and recommended to potential clients at point of sale. Whether in a store, online, on a telephone selling opportunity or during a corporate presentation, it’s all about what product is presented and recommended.

The manufacturer must make a profit, the dealer must make a profit, the salesperson would like a reasonable commission and the customer would like …

… the confidence that they will be sold an appropriate solution. All of these things can happen in a spiff world.

Get Creative

Not that there isn’t room to improve. Consider the way dealers and manufacturers think about spiffs: Salespeople often take the path of least resistance and sell only what the customer asks for. A spiff bumps them out of that autopilot. Now, I recommend that channel dealers build on that by coming up with innovative ways to reward building margin into sales, improving attach rates and increasing staff product knowledge.

Speaking of attach rates … this is one of the most underappreciated areas of the sales process. Salespeople generally sell the product that the end user asks for; they rarely take the time to mention five, 10 or even 15 ancillary products that are natural go-togethers. If they sold even a few of those add-ons, the total sale AND the total margin would go up, AND the end user would gain enhanced productivity and utility.

Extending a hand to vendors and working together to design spiff programs will clearly benefit both organizations. I can personally tell you it is happening at leading dealers and manufacturers in many industries where human beings still make the sale.

Understanding the relevance of spiffs and leveraging them as sales assets is the first step; working with tools that better deliver and manage effective spiff programs is the next. There is plenty of room for further development of spiff programs and management solutions in the marketplace. Let’s work together to help the partners, vendors and manufacturers design, implement and manage successful incentive programs — it’s a win-win-win.

George Kriza has over 30 years experience in the personal computer and consumer electronics industries. Since founding MTC Performance, he has focused on web-based technologies designed to break new ground in facilitating the success of incentive programs. His technology, sales and marketing expertise, combined with keen analytical skills, have enabled him to provide direction to many other corporations looking for a faster track along their marketing curve. Sony, Apple Computer, ITT Corporation, Panasonic, Creative Labs and Proxima are just a few of the companies that have utilized George’s experience.