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every one today we have a different topic for you this looks at how companies increase their exposure of products outside of traditional means like advertising for instance when a company advertises on a traditional media outlet that's different from when they do other forms of advertising like through marketing development with partner companies or affiliates in the channel today we're talking about that we'll be going over how these different avenues of exposure happen how they are generally agreed to what it means and if it means anything for you we'll also be talking about some of the way that the retailers operate like new AG and Amazon for instance without too much on it specifics but enough to give you an idea of how Company A versus Company B might get more exposure on one of those retail outlets versus another this is a topic that's been of interest lately as we've seen a few comments discussing the different modes of exposure for companies and how they get their products marketed whether or not that's good or bad is one thing but we can certainly talk about how it works in the very least before we get into that this is brought to you by our patreon backers who helped viewers like you get an inside look at the industry and generally expand our testing efforts you can go to patreon.com/scishow and become one of the patreon backers or you can go to games next with Squarespace com2 pick up a shirt like our new GN anniversary edition logo shirt so today we're focusing on a discussion of marketing Development Fund or sometimes called market Development Fund which is abbreviated as MDF this is a term you hear a lot working in the industry whether on our side or on the manufacturer side and it has different meanings to different people to different companies even in different industries but within the world that we occupy and computer hardware generally the idea is that MDF is an allotment of money or rebate or some contingent of a currency whether it's a credit rebate or just hard cash that can be spent toward things with the companies that are in partnership this is generally used for the partners to push their channel exposure so for example an SI would have an MDF allotment with someone like Intel with maybe with nvidia with maybe with corsair or really any of the manufacturers you can think of they generally have different agreements in place with one another strategic alliances are sort of in the same bucket but a bit separate and that helps the companies expand their brand awareness and expand their shipment of certain products like maybe a power supply ship more of them in a particular quarter if you establish an alliance with an SI and establish some sort of MDF between the two companies so that everyone feels happy with the agreement at the end of the day so this is something that's a very interesting topic it's one that we are able to fortunately speak with some of the SIS on the manufacturers about and get some insight but overall this is actually an object with which you come into contact on a daily basis maybe without even knowing it so for example when you go to new egg and you see those banners on new eggs web sites those generally come from a pool of MDF whether it's rebates or otherwise and that's because those banners aren't free so if you see a banner advertising a particular company's product either they have straight paid for the banner which from what I've been told is fairly uncommon or more likely they have an account with nooooow already they have some MDF that they can spend the manufacturer that is and then take out a banner for something like a holiday but let's take it back of step as stated earlier MDF is seen as different things of different companies and different people generally speaking MDF is distributed as something like a rebate or in some cases just hard cash once a certain agreement has been fulfilled for example ship X of our product in your systems and fulfill a quota for whatever quarter and we'll give you Y amount back for each of those systems ship in which case the company either gets that in a rebate that can be spent with their partner for example on hardware that can be used they can lower their cost for the systems and their bill of materials or maybe just in hard cash so they can use for whatever they want it depends on the agreement establish between the two companies of course so this is different from buying in bulk and si might for example by 20,000 units of particular motherboard or something like that if they know they're shipping a lot of SKUs of a specific build for a specific period of time buying a lot of units is different from MDF they might have a lower cost on those units than you would as a consumer this is how some of the SIS are able to get their prices so close to DIY prices even though they're assembling it for you and that's because they are well one the SI is generally will ask for things outside of the retail packaging so either just in a brown box or some other low-cost packaging so you cut a whole lot of money off right there because the boxes are actually expensive in some cases and then - they're just exceeding moq or they're really ordering high-volume which shows always in any kind of supply or manufacturing business means that your cost goes down as we discussed somewhat recently in an SDN actually but that's different than getting something like a rebate for fulfilling contractual agreements where you might be placing specific products on specific systems so let's go through a few examples of this in action the main one here MDF is mostly useful as something like a rebate pool of money so let's take a retailer as the first example and then we'll look at manufacturer internal relations next if you're looking at something like a retailer what might happen is a company let's just go ahead and call it company X because it doesn't I don't think any companies we work with start with X on t conclusions no it's not Xigmatek it's not that my sware company x might go to Newegg and give them $100,000 per act for per period of time let's say per quarter so we give you $100,000 per quarter for operating services what does that include that includes things like handling your inventory holding the stock physically in a warehouse at the Newegg location supplying in analytics engine where you can track the cel-3 rate for example the product or generally just handling and shipping things and giving you materials and software to conduct business through that retail outlet in a way that hopefully makes you money you pay for that service but what do you get in addition to that no egg has to sweeten the deal so what do they do one thing they might offer is say okay as part of your hundred thousand dollars you're paying us for this quarter what we will also do for you is give you a pull of money MDF that you can use for other things like banners on our website to promote your products during periods of time which you find useful for driving sales higher so that's part of it you get this pool of money that with this specific example that company X can happen to pull ten thousand dollars let's say and maybe use space at new exudes at a trade show they exchanged this MDF that they already have with Newegg so it's not seen as coming from an actual account it's still money it's still real money but it's not coming from the same budget as the marketing team might normally be spending from where they're given a certain budget for advertising with media outlets or for trade shows or her flights and transit for employees to go to trade shows or for media members to go to media events that's a different allocation and so MDF can be pulled from two one mentally make it feel like you're spending money from a different place meant to in reports you are spending money from a different place so it gives you the ability to be a bit more mobile with what you decided to do so some of that money from new eggs and the app for company acts might go to find space at their booth at a trade show or and effectively look like a $0 fan because you've already spent the money at the beginning of the quarter just for the services of being sold on new eggs website so that's one example another example is you might have manufacturers of hardware approaching sis and saying we want you to fulfill this quota or ship this many systems with this particular product that we make for the next period of time and in exchange for that we will give you rebates or will give you big discounts on this item so that it you can improve your margins or so that you can undercut your competitors and price or whatever it may be basically benefit the business if you use this product in your system until an AMD both do this as an example that everyone's familiar with so for a specific example there have been times when we've received systems from sis that might contain specific components that were put in there because of an agreement with the company making the component an example would be a GPU for instance there was a period of time when there were review systems going out from sis that contained a very specific model of GPU and that was as part of an agreement to drive down the cost and benefit the SI and of course once we get it in-house we do whatever we want with it swap the GPU if we need to or whatever but they've fulfilled their agreement and so the manufacturer is happy they get their MDF share and they can spend that however they have agreed disbanded and the big point here is that really everyone does this it's just a matter of how much money do they have and who cannot spend the other so looking at that Andy has done this with their Radeon 300 series GPUs where sis would send out systems to reviewers with only r9 302 GPUs for review units and that was part of their agreement Intel does it with CPUs and systems from SAS as well as many of you know and then even if you look at case cooler power supply manufacturers same fan it extends through the whole industry it's not just the big three being the big three silicon semiconductor manufacturers Intel and NVIDIA this also extends people like Corsair and folks like that NZXT really you name it Coolermaster they all have different agreements with s i--'s and with retailers where money exchanges hands to promote a product one way or another or to shift more of a product and particular system for a time period and then either they keep up those agreements and continue shipping the systems with those products or someone else comes in and makes a better deal for the SI or for the retailer whomever it baby and then retailer MDF is mostly based on how much business you conduct with the retailer like new Agra Amazon again the banners aren't free there and so some of that moves out of the market development funds which is largely based on volume moved through that particular retailer at least in New X case this is kind of seen as cost of doing business so it's mentally separated from the normal funds that the marketing department has access to and might include funds for purchasing ad space or buying components for tradeshow systems or flights for events as discussed but this one is separate and used specifically for or different needs like from a retailer and this feeds into where again just to kind of recap the earlier point retailers charge a service fee to use all of their shipping analytics their product listings and SKU management and all that stuff that's not free and just because they make money selling the product doesn't mean that they give it to you for free because margins are actually really low in the hardware industry in most cases actually most pretty much all of the high-end hardware cases you're looking at below 10% margins it's not till you look at something like a case fan where the margins are way better to the point where they start making up for your small margins in other areas so the tools aren't free the retailer's can make back some more money since the margins are low for them on a lot of products and so they sell the service of selling the items to the manufacturers and then to make it sound like it's better than it is of course they do different agreements like we've been discussing you might see companies like in the past be quite to this it was a public thing so it's certainly no secret where if you go to a new egg's website and you see a product listed by a company like be quiet it might be sold by that company directly rather than sold and shipped by Newegg this at least for a while I'm not sure with the cases today for a while this was a good way to bypass the requirement of spending for Newegg to handle the services for you so your company is now responsible for all the core services shipping handling all that stuff customer communication but as a result you're not spending the money on the service provided by Newegg because they're not providing it though perhaps you have less exposure through their banners or less exposure through their featured items listings or less exposure when sales go live so you could see why these companies all kind of fight each other financially to try and get prioritization on different retailers and a couple other examples of where this type of stuff gets used in the real world outside of a retailer if you remember our bloatware coverage in the past like with Emma size laptops as we stated there a lot of that isn't it's not because msi or any of these companies are trying to say look at all these great features were providing you that's certainly what they say it is but that's not why those software solutions are on the computers or the laptops or whatever it is they're on there because there's bargaining agreements between the companies so you can get some extra income as the creator of the system if you agree with Norton to install and ship their software on a million systems or whatever it is so that's another example of where MDF or at least marketing agreements if not MDF come into play another example you may sometimes see in system integrator builds a high wattage power supply's doesn't make a lot of sense or something like that you see a component where you're like I wouldn't choose that why is that in there well for a lot of those cases keep in mind that the SI is often get that stuff a lot cheaper than you could and it might just be an instance where they have a lot of them on the shelves as part of some agreement and they can get them a lot cheaper then a consumer could retail anyway so it's not going to hurt them to put it in the system if they already have a ton of them sitting on a shelf in fact it may actually better if they're putting a bunch of 800 watt power supplies into computers that don't need them just because maybe that particular 800 watt power supply is going al or they need to get it off the shelves in clear space or they just have a ton of them at discount prices or whatever it may be or they just have some agreement to ship a lot of that particular power supply Microsoft also offers them the for using its operating systems and build so this is something like a rebate basically where you install the glass on your systems you meet a whole bunch of requirements and then if you've met those requirements if Microsoft's happy if you've installed their OS on the system ship then you get a rebate basically off of your cost that you spent on the keys so as an SI you're still spending money on all those activation keys and license keys and then at the end of the quarter or the period that the contract plays out you get some of that money back from Microsoft to spend on what you want or what they say you can spend it on it that there's some strict - sure requirement in their agreement it really just depends on the company so that's what we're looking at that is a breakdown of the basics of how marketing development fund gets used or the differences between MDF it does traditional advertising or traditional promotional budget there are bit different things they are thought about in different ways within the companies keep in mind that if you've ever worked in a corporate environment which I'm sure many of you do you know that between departments there's often vying or fighting for budget and so this is another pool of budget with a different label that the companies can internally work with and hopefully make things a bit easier for them when they're trying to accomplish very specific things with retailers or with sis or generally increase increasing brand exposure and awareness this is a there's a lot more to know here this is not an area where we specialize we are not marketing experts we are technology testers and enthusiasts so this gives you a top level explanation hopefully it helps folks understand why you see the advertisements and promotions you do and I don't mean on like a YouTube channel or on a website I mean on retailers where they advertise to you or throughout size you see all those banners on their pages that promote a products at the top of the page there's a reason for that it's not just free at least most the time it's not just free the same goes for pretty much every part in the system so they all pretty much do it just wanted to point that out that you're watching as well you can go to patreon.com/scishow and access topside directly you can go to your gamers Nexus not Squarespace comm to pick up a shirt like this one I warned that while GMO go shirt is a classic and we've also got the graph logos anniversary logos all that stuff subscribe for more thank you for watching and I'll see you all next time you