Companies have many tools available to them when it comes to pricing, from discounts to direct price reductions. These are two go-to strategies for driving sales and attracting customers. But there’s another tool that many companies overlook: rebates. Rebates offer a subtler, but still powerful, means of influencing buyer behavior and enhancing profitability.  

In this blog, we'll dive into the unseen advantages of incorporating rebates into your pricing strategies by Kevin Mitchell. President, PPS. Exploring how they can not only preserve your brand's value but also foster customer loyalty, optimize sales, and ultimately, contribute to a healthier bottom line.  

Discounts vs. Rebates

Consider pricing strategies like "good, better, best" or "gold, silver, bronze" tiers. These strategies work because your brain is wired to choose the middle option when faced with extremes. This isn't rational, but it's effective.

Let's look at an example to illustrate. Imagine a lemon meringue pie for sale at your local grocery store, priced at $7.99, but every other week, there's a buy-one-get-one-free offer. The pie's regular price anchors its value, and the frequent discounts reinforce your expectation of getting it cheaper.

Once the pie was effectively priced at $4 due to frequent discounts, that became your anchor price. You would never be willing to pay $8 again, even though you valued the pie at $8 initially. To you, the discount becomes the new list price, not a temporary reduction.  

If the supermarket had used an effective rebate strategy instead, you might have perceived the price as $8 but felt rewarded with a rebate for being a loyal customer. This would have maintained the $8 price point in your mind while providing a sense of partnership and reward.

This illustrates the difference between discounts and rebates. Discounts create a lasting expectation of a lower price, while rebates maintain the higher list price but reward customer loyalty, preserving perceived value. The goal is to remind customers of the high value of your goods and services through rebates rather than lowering prices and devaluing your products.

Rebates Drive Behaviors

Rebates are financial incentives that encourage specific behaviors from customers. By offering rebates, businesses can motivate their customers to engage in behaviors that align with the company's goals and objectives. This can include making larger or more frequent purchases, choosing specific products, or maintaining loyalty to the brand.

For example, rebates can be structured to encourage customers to make larger or more frequent purchases by providing them with the opportunity to receive a portion of their purchase price back. This not only incentivizes immediate sales but also fosters repeat business and customer loyalty over time.

Additionally, businesses can use rebates to influence product selection, steering customers towards specific offerings that align with strategic priorities. By offering rebates on certain products or product lines, companies can stimulate demand for these items, drive sales volume, and potentially gain market share in key segments.

Ultimately, understanding behaviors can help businesses create more effective rebate strategies that are better at reaching and influencing potential customers. Effective rebate strategies can protect your brand, build customer loyalty, and create strong partnerships. They provide a clear call to action and can adapt to changing market conditions, ensuring long-term profitability and customer satisfaction. By focusing on customer perspectives and leveraging behavioral economics, you can create pricing strategies that resonate deeply and maintain brand integrity.

Seek Partnerships, Not One-Time Gifts

When a customer expects an annual discount, it becomes problematic if the discount is not provided. Rebates, however, engage customers in a partnership, encouraging desired actions and reinforcing the value of your products.

New customers first see the list price, which sets their perception of value. Discounting can lead to permanent expectations of lower prices, which can spread if employees move between companies. A well-structured rebate strategy can differentiate offers based on customer performance and engagement, maintaining the perceived value.

Your focus should be on protecting price points, reinforcing value, and fostering strong partnerships. Every rebate should drive a positive outcome, ensuring mutual benefits for both you and your customers. Rebates should be meaningful and part of a broader strategy, not just arbitrary discounts.

By focusing on tailored rebate strategies and understanding your customers' needs, you can protect your prices and maintain strong, value-driven relationships.

Want to learn how to bridge the gap between pricing and rebates? Download our Recipe for Pricing Success eBook.