industry rebate Archives

Rebates are powerful tools for increasing cooperation between trading partners and driving margin growth, but they have to be deployed and managed effectively. This means developing incentive schemes that maximize value for both partners, effectively managing the rebate strategy, and most importantly, understanding the numbers. When supply chain partners calculate optimal sales volumes, product mixes, etc., they will be capable of building rebate structures that help them achieve ambitious growth targets.

Successful rebate strategies require visibility. Partners need to understand what they want to achieve, whether that’s growing profit, product reach, market share, etc. Then, they need to choose the right kind of rebate to support that action. But before any plan is implemented, partners should also run the math to ensure the rebate type and the execution plan will ultimately support their objective at a commercially viable cost of doing so.

There also needs to be communication between partners (and departments, such as sales and accounting) to ensure alignment on the rebate strategy. When suppliers and buyers focus on developing and maintaining a data-driven rebate program, they will improve their margins and build healthier long-term relationships.

Rebates are more customizable than simple incentives like discounts, which is why they have an excellent track record of helping companies lock in profits and remain competitive. But it isn’t enough merely to have a rebate program in place – partners need a thorough understanding of the numbers underpinning that program to maximize the value of rebates for both parties.

Visibility and alignment are crucial

Suppliers and buyers can’t fully leverage rebates without visibility. When partners negotiate rebates, they should agree on mutual objectives and targets for optimal performance. For example, let’s assume partners have agreed to a retrospective framework that will provide a pre-specified rebate on all transactions in the quarter if a certain purchasing threshold is reached. This deal only makes sense if it meets objectives for each trading partner, so both partners have to run the numbers and validate the activity and rebate will deliver against their mutual objectives. Once a rebate strategy is in place, it needs to be regularly monitored to ensure that it continues to meet objectives.

Supply chain visibility has been a core focus for the past several years, with over two-thirds of leaders in the sector implementing dashboards for end-to-end visibility. Effective rebate management demands visibility as well – it’s essential to know how a rebate platform will affect margins for both parties, as this platform should always incentivize ongoing cooperation.

Getting the numbers right

A comprehensive understanding of demand trends, potential margins, and a wide range of other variables is vital to develop a profitable rebate strategy that benefits both the company and its customers. This may seem overwhelming at first, but these calculations are necessary and must be integrated into existing processes to create a rebate program. Too many companies instead ignore this step of the process as they are blinded by the prize of just winning the sale. This makes the development and implementation of a profitable rebate strategy far more difficult.

The creation of an incentive scheme requires robust analytical tools that allow partners to easily gather, share, and evaluate data. One key advantage of rebates over discounts is their capacity to account for a wider range of variables. As rebate strategies become more sophisticated and complex, it’s increasingly important to move beyond manual processes that could lead to costly errors, create silos within and between companies, and hinder the decision-making process.

There are many numbers supply chain partners have to calculate to determine which rebate strategy will lead to the best financial outcomes. Does the supplier want to increase sales volumes or margin? Does the buyer have a desire to grow their purchase volume with that supplier in that product range? Does it make more sense to promote add-on products? Suppliers and buyers should ensure their objectives are aligned. This alignment helps create a budget for the rebate program itself and maximize the value of their rebate strategy.

Managing your rebate strategy effectively

Rebates allow companies to forge stronger relationships with their partners and secure an array of financial goals. But many companies fail to take full advantage of rebates because they have not calculated the financial impact. . Partners need to carefully analyze their rebate programs to ensure that mutual objectives are being met and the rebate program itself is beneficial to both sides of the partnership.

There are three pillars of a rebate strategy: SMART, commercial considered, and manageable. Rebate strategies should be built SMART: Specific, Measurable, Achievable, Relevant, and Time-bound. When rebates are commercially considered, they take into account the commercial reality of a business and the markets that business operates in, aligning strategy to financial reality, such as considering the impact on profit margins. Finally, rebate strategies should be manageable: the strategy should be designed such that both parties can execute on it. The strategy should not place undue burden on either side, and should provide a framework that promotes collaboration, mutual benefit, and long-term business relationships.

Supply chains face major disruptions, companies are attempting to get costs under control amid a tight labor market and economic uncertainty, and consumer demands are more exacting than ever before. Normalcy still hasn’t returned following the chaos the past few years – the COVID-19 pandemic, war in Europe, and a sustained period of high inflation. And while inflation has come down, it remains stubborn even as the effort to arrest it is threatening to cause a global banking crisis.

These are all reasons companies must partner more closely with their trading partners. And key to partnering closely is providing healthy behavioral incentives that ensure all partners are successful. In my work, I’ve seen several incentive types through the years, but the healthiest I’ve seen over the long term, are rebates. And what I’m seeing now validates this – in an expanding array of industries, companies are adopting rebates to strengthen their supply chains and establish more cost-effective relationships with trading partners.

Rebates are versatile financial tools that enable partners to set goals and incentivize achievement. When designed properly, they optimize financial outcomes like improving margins and profits for partners, and bolster relationships between trading partners. By fulfilling on the incentives when goals are met (such as an increase in the sales of a specific product), rebates give companies the tools they need to customize their business strategies, incentivize the maintenance of healthy long-term partnerships, and adapt rapidly to shifting market conditions.

Rebates allow trading partners to build more strategic relationships, drive revenue while protecting margins, and maintain market share even in tumultuous economic conditions. This is why we will continue to see an emphasis on rebate management across a widening range of companies and industries.

How rebates improve trading partnerships

Times of economic stress can be particularly hard on the relationships between suppliers and their customers. When shipping costs exploded in recent years (they have since come back down), suppliers passed these costs along to their trading partners. Backlogs at ports, shipping delays, and other crises were significant sources of friction in these partnerships. Inflation and global economic instability exacerbated all these issues.

Rebates can reduce the tension between suppliers, distributors, and other trading partners by generating strategic alignment across the supply chain. Because rebates ensure that trading partners develop compatible business objectives and KPIs, they create powerful incentives to collaborate over the short- and long-term. Rebates modify behavior by presenting clear business opportunities to both parties in a trading relationship. For example, rebates can help suppliers and distributors adjust the sales mix to promote new products or those with higher margins and lower volume. Simultaneous production and sales incentives can increase revenue and limit risk.

The implementation of a robust rebate management platform can improve visibility across the supply chain – a capacity which 77 percent of supply chain leaders say they’re investing in. Rebates work best when information flows freely between trading partners, as their negotiations, targets, and adjustments have to be based on accurate data. This is yet another way rebates provide healthy incentives to the companies that use them.

Rebates are revenue engines

I hear about companies offering discounts in pricing instead of rebates because they don’t have confidence in the simplicity or trackability of their rebate programs. And it’s been true traditionally that keeping rebate programs simple but effective on a customer-to-customer basis is difficult. But as a client once told me, “Discounts are soon forgotten, but rebates are earned.”

Rebates are critical to improved trading relationships where both partners feel like they’ve won. And they’re critical to reacting quickly to win deals while maintaining healthy incentives.

Unlike pricing discounts or promotions – which are limited in depth and scope – rebates are advanced tools. While discounts reduce the price of goods at the point of purchase, rebates allow trading partners to develop systems of incentives based on long-term growth priorities, shifting behavior and market conditions, and inventory priorities.

Rebates also enable partners to develop and implement sophisticated trading mechanisms such as incentive bands that apply monthly, quarterly, or annually; pricing tiers in which volume fluctuations determine how much rebate is provided; and conditional agreements that account for economic changes and other unpredictable variables. This level of customization gives trading partners the ability to fully leverage their relationships by making those relationships more adaptable, mitigating risk for both parties (by preparing for a wider range of contingencies, for instance), and incentivizing future cooperation.

Rebates are particularly important during periods of economic volatility, as they hedge against unpredictability by providing a financial backstop when sales numbers and other KPIs fall short. Rebates also allow companies to differentiate themselves from their competition while maintaining healthy relationships with their trading partners. This is why companies in many new industries are investigating how to create and sustain their own rebate programs – they want the ability to navigate adverse market conditions and remain competitive in a turbulent economy. They also want to ensure their incentives maintain a healthy relationship between their partners while differentiating them from others.

Why now is the right time to consider rebates

A significant proportion of companies in the supply chain sector have long understood the value of rebates – for many distributors, rebates comprise 100 percent of their net profit. But the awareness of rebates is rapidly spreading to other industries as cost pressures and the state of the economy force companies to consider new ways to generate revenue and minimize risk. Meanwhile, supply chain companies and other long-time rebate users are making even larger investments in their rebate platforms.

According to a McKinsey survey, the COVID-19 pandemic caused 93 percent of supply chain executives to focus on making their supply chains “far more flexible, agile, and resilient.” McKinsey also found that B2B companies with their own marketplaces are capturing more market share than competitors – a shift that demonstrates how distributors are using incentives (like market access) to build stronger relationships with suppliers. These are a few of the central reasons supply chain companies continue to increase their investments in rebate management. While the pandemic was a catalyst for change in the supply chain sector (demonstrated by the renewed interest in regionalization, for example), the economic chaos of the past year is having a similar effect. A 2023 PwC survey found that 86 percent of supply chain executives think their companies should “invest more in technology to identify, track and measure supply chain risk.”

Effective rebate management platforms facilitate communication and collaboration between trading partners and provide the digital resources necessary to increase visibility across the supply chain. The same applies to trading partners in other industries – by creating compelling incentives to develop joint business plans, share data, and forge stronger long-term relationships, rebates bring companies together around common goals and KPIs.

Rebates uncover new sources of revenue while helping companies identify and mitigate risks. At a time when high inflation and a looming recession are contributing to a profound sense of economic unease around the world, it’s no surprise that companies are increasingly using rebates to improve their financial position.

The Importance of Commercial Appraisal in Rebate Strategy

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