The Role of Rebates in Defining Your Market Opportunity
Market opportunity, although a simple term, can have a lasting impact on your organization. But what does it really mean? It refers to the sizing forecast for your product or service, now and over the next few years. An example could be, "The market opportunity for pocket calculators is $X million and is expected to gradually increase at Y% per year over the next Z years."
Market opportunity dictates a lot of strategic decisions taken at an organizational level. It is an integral component for every business. If you’re wondering why you need to define it in the first place, look no further:
- Human and monetary capital: With a better scope of the available market and growth trajectory, you can make educated decisions on the manpower and investment required to supplement the initiatives aimed at exploring market opportunity.
- Yes/no decisions: Market sizing can play a pivotal role in restricting those “crazy” ideas and pet projects that often arise from the corner office.
- Directional expansions: If you intend on expanding your solution into adjacent segments depending on the maturity of your business, having a clear understanding of the market opportunity prior to expansion can simply be the differentiator between other competitors.
Now, let’s dig a little deeper into how rebates can help you unlock your market opportunity.
Lower Market Barriers
Historically, rebates were used as a tool to drive product penetration into the marketplace via established trading programs. Consider a volume rebate agreement, where a 10% rebate is offered for purchasing over 2,000 units of a product that costs $80. Meeting this condition triggers a rebate payment of $8 per unit to the customer, which effectively brings down the initial price paid for the product. In this way, suppliers have been able to use rebates to encourage higher-volume purchases of a given product.
The interesting bit is that this “small incentive” can add up over time if you have many rebate agreements in place. When you offer your customers robust rebate programs, you're giving them that feeling of finding a dollar in their pockets when they least expect it. But in this case, they’re finding hundreds of thousands.
Rebates can unlock potential revenue opportunities like no other, making them extremely popular tools to kickstart markets and overcome initial market entry barriers. A well thought out rebate program for your organization can help you overcome these market barriers. How? Here are a few ways:
1) Lower risk: By lowering the initial price using rebates, customers are more likely to try an unfamiliar product, which reduces their anxiety around performance expectations. If they have a good experience, they will most likely use it again, with or without the inclusion of rebates.
2) Awareness boost: Rebates can be a strong attention grabber. Look away introverts. They can be pivotal in helping customers learn more about the benefits of the product and the potential savings they can make. They are more inclined to this discovery if a lower price is offered thanks to a rebate agreement.
3) New market support: Entering a new market is never easy. By leveraging rebates, organizations can temporarily support changing market conditions until economies of scale that reduce production costs kick in.
Expand and Sustain Market Share
The objectives of businesses using rebate agreements have shifted over time. Whereas before, companies used rebates to help them enter the market with new products, companies now use rebates to expand and sustain the market share of their products over time. How? Here are a few ways:
1) Customer loyalty: With the inclusion of rebates, customers know that they’re spending smartly by getting incentivized prices in value for their money. They are more likely to stay loyal with a trading partner that offers a robust rebate program.
2) Purchase urgency: Based on the trade agreement, rebates can influence customers to purchase products or services repeatedly to successfully achieve certain rebate bands or thresholds. This urgency can help organizations predict purchase behavior and sustain market share.
3) Personalization: Incorporating a rebate program means leveraging customer data to deliver more personalized experiences for them, such as enrollment of customers into your loyalty program, product reviews that influence the roadmap and much more. Offering personalized experiences can set you apart from competitors in the industry.
This change means organizations must reimagine, reengineer and implement new rebate programs that cater to these new needs. This begs for a major change: rebate programs geared at changing customer attitudes and purchasing habits. This change in mindset is briefly covered in a previous article.
Only customers and the market they operate in can define how successful or unsuccessful your rebate program will be. They serve as catalysts for how your rebate strategy is defined within your organization.
The Way Forward
Rebates can help you lower market entry barriers and increase market share over time, ultimately helping you realize the total market opportunity available. This means implementing a strong rebate program is no longer a checklist item but a competitive advantage for your business. If you’re looking to use rebates to define your market opportunity, Enable can help.
We take rebate management seriously — so much so that we built out a platform that deals exclusively with managing rebates for your organization. We are fully committed to taking this journey with you.
We invite you to strengthen your trading relationships, foster a culture of data transparency and stimulate data-driven decision making by working with us. A brighter future awaits. Enable us to enable you and your trading partners.