A "rebate reset" signifies a moment to reassess your approach to rebates. It's about taking a step back from industry expectations and evaluating whether your current rebate structures truly align with our goals of driving specific behaviors. This thoughtful and strategic approach involves scrutinizing data, understanding customer reactions, and challenging assumptions.

For example, consider loyalty programs in the airline industry. If every passenger was guaranteed the highest tier regardless of their flying frequency, the system would lose its effectiveness in incentivizing desired behaviors. Similarly, in rebate programs, there should be a balance between rewards and requirements to ensure they encourage meaningful actions.

Recognizing the Strategic Value of Rebate Programs

One aspect of a rebate reset involves questioning the value of the rewards offered. Unlike pricing strategies, where calculations are typically grounded in commercial math, rebate amounts often lack this rigorous analysis. You must recognize the significance of the rewards from the customer's perspective. A rebate percentage may seem standard, but its impact varies depending on the customer's size and purchasing patterns.

For instance, a 10% rebate on a first order might not be compelling enough for larger customers, while it could greatly influence smaller ones. Therefore, a rebate reset prompts us to recognize the value proposition of our rebate programs and tailor them to resonate with the diverse needs and behaviors of our customers.

Driving Desired Behaviors

Transparency in rebate agreements is crucial for driving desired behaviors, whether it's growth or promoting certain product mixes. Concealing rebate details from customers undermines the purpose of incentivizing specific actions. Ideally, a well-designed rebate program should motivate customers to aim for higher tiers or levels of rewards by aligning with desired behaviors.

We've inadvertently conditioned customers to expect rebates without necessarily engaging in the behaviors that warrant them. However, true motivation and engagement come from clear measurement and understanding of how actions directly impact outcomes. An analogy would be asking a race car driver to improve their lap times without providing timing data—it's an exercise in futility. Similarly, rebate programs should offer clear expectations and tangible rewards for desired actions, fostering a cycle of mutually beneficial behaviors.

There's value in transparently communicating to customers the rationale behind the rebate structure. Rebates should be seen as a mutual endeavor—a partnership in business. For instance, if you express to a customer your desire to sell more doors because they yield higher profits and you're willing to share that benefit, it fosters a collaborative spirit, which in our opinion defines a successful rebate strategy.

Aligning Rebate Programs with Specific Objectives

When discussing rebates with many of our customers, it's common to hear them perceive rebates as simply a cost of doing business. They may give rebates because customers request them, but often lack clarity on the objectives behind these incentives. When asked about the objective of their rebate programs, the common response is usually one word: growth.

However, this broad objective of "growth" can lead to unintended consequences. For instance, incentivizing growth without specific parameters can encourage customers to focus on purchasing low-margin products to reach rebate tiers, ultimately eroding margins further. This lack of specificity in objectives can result in ineffective rebate programs and reluctance to transparently assess performance.

Inherited rebate programs often reflect this broad approach, lacking the specificity needed to drive desired behaviors effectively. Larger companies, in particular, may struggle with operational complexities when attempting to implement more targeted strategies. While specifying rebates around specific categories or products may seem ideal, it requires significant resources and operational capabilities. Such specificity can add complexity for customers who must navigate multiple rebate programs from various vendors.

Navigating these challenges requires a balance between the desire for targeted rebate strategies and the operational realities of implementing them. While it's important to align rebate programs with specific objectives throughout a rebate reset, consideration must also be given to the practicalities of execution and the impact on the customer experience. Finding this balance may involve trade-offs and requires careful consideration of both internal capabilities and external customer needs.

Bringing You and Your Trading Partners into Alignment

Challenges arise when customers have limited visibility into rebate programs, especially when dealing with multiple vendors and complex rebate structures. This lack of transparency can lead to last-minute scrambles to meet rebate targets, indicating a broader issue with managing rebates in the B2B space.

Disputes often arise due to lack of clarity or measurement discrepancies between both parties. Such conflicts can damage the partnership and lead to strained interactions, even over relatively small rebate amounts.

Despite the challenges, maintaining strong relationships with trading partners to drive mutually beneficial outcomes is crucial throughout a rebate reset, especially when dealing with valuable customers. This alignment requires clear communication, transparent objectives, and technological solutions that facilitate visibility and ease of management for both parties involved. ‍

Are you looking to plan and execute a rebate reset in your business? Check out our roadmap to guide you through each pivotal aspect of the process.