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Rebate Types
Why Do Manufacturers Issue Rebates?
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There is a technology shift that’s driving a change in the way we do business; it’s also driving a massive change in the outcomes of rebates. But most of us haven’t fully harnessed this shift due to complexity taking over. Our rebates are difficult to manage manually and at the same time, we need real-time data and collaboration among our supply chain to get the right information to make the right decisions at the right time.
All of this can be achieved with an effective rebate strategy that incentivizes the right behaviors to drive the revenue and margin outcomes you need to grow your business. But how do you actually implement a rebate strategy in your business? In this article, we explain all the ins and outs so you can succeed in 2023.
Three Pillars of an Effective Rebate Strategy
1.Targeted & Deliberate
When putting together a rebate strategy, you need to think SMART: Specific, Measurable, Attainable, Relevant, Timebound. When managing rebates, it’s important to maintain this level of structure and intentionality with your deals. If you don’t, you won’t know what’s going on. And then you’ll join the mere 2% of manufacturers who actually think their rebate strategy is very effective at achieving their goals. Yikes! That’s a small number.
A good rebate strategist knows not only what you’re working to incentivize, but how to measure and assess your progress towards your goals. Your incentive programs — your rebate programs — must be sufficiently rewarding to drive behaviour without accruing too much cost so that both you and your trading partner benefit.
2. Transparent & Collaborative
More manufacturers are going direct to consumers, cutting out distributors and retailers. Of manufacturers still working with distributors, nearly 1 in 4 don’t know how many distributors they support with their volume rebate programs. Meanwhile, 57% of distributors in buying groups don’t know the rebate amount earned from each manufacturer. This drives toward a lack of transparency between manufacturers and customers, and ultimately may mean less trust.
But with an effective rebate strategy in place, both sides should know exactly how they are performing and what is required to earn more rebate. It should encourage both parties to work together for mutual success. Do not be afraid to revisit the terms if the landscape changes, this is a collaborative venture after all!
3. Strategic, Efficient & Confident
The time, effort and manpower it takes to manually manage rebate programs leaves little room for strategy. Ideally an effective rebate strategy managed with the right tools will reduce administration, not increase it – e.g., fewer pricing conversations as the rebates are structured to dynamically reward based on activity. The customer must also have confidence in the rebate program, this means paying them on time (and not twice), which means being more efficient.
The Key Rewards of a Good Rebate Strategy
Businesses who have recognized the need to use rebates strategically, are at a competitive advantage. They are reaping the following rewards:
Growth
When trading partners work together efficiently, based on a mutually beneficial strategy, this can be a powerful force for growth. Likewise, when rebates are manageable, visible, trusted, and productive, they drive growth.
In the webinar on leveraging your data to drive revenue growth, Enable’s customer, Bob Gay, discusses how rebates are a strategic business tool that helps his company, Advance Auto Parts (AAP), attain revenue growth.
Influence Loyalty
Rebates are about influencing behaviors. When you promise your trading partners rebates, you’re encouraging them to engage with you in a more meaningful capacity while simultaneously keeping them happy. Loyalty programs (and rebates fall into that bucket!) provide sales incentives to partners and reward them for their efforts. When done strategically, effectively-managed loyalty programs with associated rebates provide clarity to partners on where to cooperate, where to engage with customers, and how to grow sales and profits.
Revenue
High inflation, spiralling supply chain costs and competitive pricing pressure means margins are approaching rock bottom for many companies. Distributors rely on rebates to see a healthy profit margin. On average, distributors have rebate programs with 50 of their top 100 manufacturers, representing two-thirds of sales.
It’s imperative to have a strategy where the more rebate you pay out the more profit you are making, this should be understood and clear to both sides. Managing rebates effectively also helps you identify which deals are the most effective and how to improve on that in the future to grow the bottom line.
Partnerships
When rebates are used as a strategy, trading partners stop being adversaries and become partners, working towards collaborative goals for mutual benefit. In fact, our research has found that 75% of distributors report that knowing rebate amounts would influence their support of a manufacturer.
A Forrester study, also found that over half of companies (52%) generate more than 20% of revenue from existing partnerships. And 62% said they believe introducing technology to optimize partnership management will be a high priority or critical to driving success.
How to Implement a Rebate Strategy Today
If you don’t already have a rebate strategy in place, here are a few steps to get started.
- Start by streamlining your rebate management process. Or, at least, identify what your current processes are and be open to improvement. Consider the cost of your current rebate management efforts and the business needs of any departments and functions.
- Understand how your business trades, so you should spend time in the business and see it from the ground up. Don’t be afraid to ask lots of questions and challenge the answers.
- Build the right team - Your team may not start out as professional rebate managers, but you can build and shape your team over time with training.
- Assess all your data (buying, sales and inventory) to verify its reliability and have real confidence in your data, for rebate calculations.
- Gain insight into your products and measure performance – as well as your company’s needs and goals – to develop an informed strategy and shape your incentive programs around it.
- Ask your trading partners what would make their lives easier and search for a rebate solution that works for them, and you.
