Economic uncertainty has distributors looking for new growth avenues. Rebate programs are an excellent option for distributors, but many don’t use them. Learn the benefits of effective rebate programs for distribution firms and how to unlock more potential in this article by Mike Slavin, Business Consultant at Vendavo.
Distribution is a challenging business. And I say this not only because I have many years of working experience in the space. Prolonged economic uncertainty. Recession or no recession? Macro trends like these and plenty of others can wreak havoc on everyone but in particular, the distribution industry. Think about what a distributor sells. It’s not auto or machine parts, medical equipment, or industrial supplies. The product is inventory and fulfillment service.
Why do end customers need distributors anyway? Couldn’t they save money by cutting out the middleman and going direct to manufacturers? Many of them do. And if they’re forced to go through distribution, how many customers routinely jump from distributor to distributor as they search for the lowest price?
Despite these hurdles, there is money to be made in distribution. And one proven way to grow distributors’ revenue and encourage long-term buyer seller relationships is with an effective rebate program. But so many of them don’t have effective programs, or, to avoid revenue leakage, they don’t use them at all. Why don’t more distributors take advantage of the many benefits a rebate program can offer? Firms consider them too challenging to manage.
The Painful Status Quo in Distribution
Even though we’re well into the 21st century, Excel continues to be the number one tool used by distributors for managing rebates. Talk about challenges! Every manufacturer that offers a rebate program has a different way of calculating and processing rebates. Some I’ve worked with have managed more than 100 rebate programs. Accruals, claims, disputed claims, yuck! That’s a lot of information to track manually. And you’d better have your resume updated if you’re not accurately capturing all your entitled rebate dollars.
We haven’t even mentioned ship and debit or other pass-through programs. Unless you’ve already invested untold millions on ERP solutions like SAP and Oracle, these are lots of fun, aren’t they? It’s no wonder that most distributors have no interest in expanding their rebates footprint to include customer programs.
The Benefits Rebates Deliver for Distributors
In reality, the effective use of customer rebate programs could do a lot to help distributors’ top and bottom lines. Those who have an effective rebate program will drive an additional 2-10% in incremental sales. Organizations who don’t are losing millions of dollars of earned rebate revenue every year.
Here are a few of the potential benefits:
Boost customer loyalty
A properly structured, volume-based customer rebate program can encourage customer loyalty and retention. And the rewards don’t have to just be rebate dollars. A building products distributor I once worked with had a program that rewarded points based on business that could be converted into an annual vacation trip for their contractor customers and their spouses. Needless to say, their loyal customers rarely price shopped and never defected.
Drive desired customer behavior
Properly structured growth programs have also been proven to drive the customer behavior you desire. The devil is in the details to make these successful however: they should be targeted to specific lines of business to ensure maximum effect.
Incentivize product mix
Mix-based rebate programs are similar to growth-based programs but you can target mix improvement incentives to key products or lines of business. Also read: Best Practices for B2B Price Rebates and Incentives.
Distribution firms can also take advantage of potential vendor rebate programs as another way to finance customer rebates and drive customer buying behavior. It’s a unique advantage of being positioned between manufacturers and customers. Product management and procurement people are always looking for ways to build business and improve margins of their assigned manufacturers. A 4% vendor rebate with 2% passed through to customers could be a win for everybody.
There’s significant potential benefit for distributors to gain by expanding their rebate programs. What’s the catch? Most distributors have learned the hard way that missing out on collecting vendor rebate money is a problem that absolutely can’t happen. In many cases, avoiding that scenario has meant throwing additional manpower at the problem. There are also challenges with potentially overpaying customer rebates. The unfortunate reaction to both these hurdles has been to have fewer programs (after all, they’re a pain in the butt anyway, right?).
What’s the better solution? It’s time for distributors to take advantage of the many potential benefits rebates offer. Start by getting rid of Excel and instead, leverage a fully featured, end-to-end rebate management system solution
See the benefits of Vendavo Rebate & Channel Manager
In an uncertain economic landscape, distributors are intent on finding new ways to grow their bottom lines. Profitable rebate programs are an excellent answer, but the key is managing them effectively. Learn the benefits and how-to’s of rebate management in the eBook, The Keys to Building a Profitable Rebate Management Strategy.