Effectively managing rebates and incentives is a highly profitable pricing best practice. Still, many organizations fail to tap into the full potential of rebate and channel management capabilities, thus missing out on invaluable business growth and sustainability. Dave Anderson, VP of Business Consulting at Vendavo, illustrates how rebates, and their effective management, can drive value for your business.
There are sales and pricing teams, possibly including yours, that drive what customers pay – their true net price -through an extensive use of rebate and incentive programs. Pricing structures with rebates and chargebacks play an important role in the management of channel and end-customer pricing when distribution businesses are partners in the value chain.
Why Rebates Should Be Part of Your Overall Pricing Strategy
There are many good reasons to consider rebates in your overall pricing strategy. Following rebate optimization best practices, a strategic rebate and incentive program can:
- Create direct incentives for buying more in a single purchase, over a time period, or across a portfolio of products
- Enforce volume commitments made during negotiations
- Enable standard price management into public or shared markets, while ensuring you manage appropriate customer pricing specific to individual customer context
- Help manufacturers manage inventory levels in their channel across their distribution partners
Vendavo recently expanded our channel and rebate management capabilities through our acquisition of cloud-based solution provider, Market Medium. Read more about the acquisition here.
Rebate programs can be a substantial competitive differentiator and play an important role in your overall pricing strategy. Typically, employing rebate programs can drive 2-10% incremental sales vs not having a rebate management system in place.
Despite these considerations, managing these programs and structures often comes at a substantial administrative cost to organizations who typically manage these efforts with a lot of people, manual systems, and risk of overpayments, or lack of follow-through.
The Benefits of a Powerful Rebate Management Solution
Investing in a strong solution for rebate management can drive substantial benefits, including:
- 2-10% upside given the core considerations listed above
- Minimizing administrative burdens by eliminating typically 25-75% of administrative expense and audit costs
- Easing access with a centralized system for all rebate, claim, and payment information across the business
- Eliminating overpayments, typically seen as 3-10% of claims paid
- Allocating rebates back to original transactions for accurate net margin and net pricing reporting and insights
- Tracking rebate program effectiveness for higher ROI from incentives and more revenue for the organization
- Developing customer and partner preferences by having a capability that provides timely and accurate payment of rebates and incentives to recipients, driving an increase in business
- Reducing risk associated with compliance, manual errors, or overpayments
- Supporting streamlined accounting processes and quicker month-end closing of the books from a finance perspective
Best Practices for B2B Price Rebates and Incentives
In B2B pricing, incentives, rebates, and channel management are a pricing best practice. Incentive and rebate best practices ensure that rebates deliver the desired price, volume, and mix and that the complexities of rebate administration do not outweigh the commercial benefits. Here are a few best practices to keep in mind:
- Pay rebates on net or pocket price points
- Design your rebates to drive a specific type of customer behavior
- Make rebates a strategic tool instead of just a cost of doing business
- Use data to better understand which customers and segments appear to be sensitive to invoice pricing changes, and which appear to be more sensitive to changes in rebates
You can find more best practices for B2B price rebates and incentives here.
An investment in rebate and channel management is an investment in a competency that will create substantial differentiation and value for any business. If you are interested in capabilities to help manage the design, execution, measurement, and administration of rebate and incentive programs connect with our team today.