Everyone knows that isn’t true – right? Well not so fast. We have suppliers and distributors discussing rebates every day. Suppliers outline what qualifies for a rebate and what does not. They may complicate things by assigning different rebates to sales volume and sales growth. But in general – they still are not rebates!
Rebates are a marketing tool of the retail world. In that environment they have substantial value for marketers both wholesalers and retailers. Retailers get to show reduced prices (the after rebate price) in most states. Wholesalers and manufacturers get benefit because they are giving in a large part “phantom price reductions.” Historically only an average of about 50 percent of rebates are redeemed. Some business report only 2 percent to 5 percent redemptions!
The 50 percent that do make redemptions have to provide lots of information that is valuable to marketers for future sales efforts, full names, addresses, phone numbers are standard. Some ask for family income, number of people in the household, ages and sex of these people and other specific information. Consumer information with this much detail is very expensive for marketers to buy. But by using rebate offers they get this information for very little or no cost since the consumers that buy without redeeming the rebate paid full price!
What suppliers offer in our industry that are represented as rebates are, in reality, delayed discounts. Some added value occurs when increased sales fall short of earning the next level of “rebate” but in general, once the “rebate” is calculated, the supplier contacts the distributor and informs them of the amount. Some remit in cash but most issue credits. The important difference is that redemption is 100 percent because there are no steps a distributor needs to take to receive the value.
So if there is no “non-redemption” value, what do suppliers think they are investing in?
Virtually all the suppliers I interviewed said they were growing sales by making it more profitable to do business with them. That just like rebates on credit card purchases, distributors will do more business if they are working towards larger rebates. There is a serious flaw in this thinking. Credit card rebates don’t compete with other credit cards, they compete with cash and checks. Since all credit card companies offer some form of rebate, cash back, air miles or points there is no differentiation. But telling a consumer that they get more value using plastic than with cash or check, the overall dollar volume put through cards go up.
In the promotional industry we, too, see almost every supplier offering a “rebate.” There might be a point difference between suppliers, but when total delivered cost for an order is calculated there is not much difference. So without a great incentive to move business and no non-redemption benefit, why have rebates or, more accurately, delayed discounts?
For suppliers that require paid on time invoices to qualify there is an obvious benefit. But for most, the hoped for increased attention to your line and increased sales is generally not happening. Distributors happily accept their year-end rebates and continue business as normal. The trap, however, is that anyone that stops offering rebates (delayed discounts) will create a difference between themselves and other suppliers and it will be a negative one.
So how can a supplier get value from their big investment in rebates? Just take the “delayed” part of delayed discounts away! Convert your rebate program to a discount on invoice program. You can require on time payment to qualify. You can increase the discount as sales increase according to your plan. You can even call it an instant rebate if you like. But what you will get is the ability to reinforce the extra benefit on every quote and invoice. A majority of distributors will use the added discount to sell more as lower client costs normally improve sales success. Distributors will promote your lines because they have something special to tell the customer.
Yes, suppliers will eliminate incremental profits from sales growth that just missed the rebate requirement, but you also avoid the ill will those just missed accounts feel when it happens.
Some suppliers that I have consulted for have elected to operate side by side programs, allowing the distributor to select which program (delayed discount or discount on invoice) they prefer. The reports I have received show that small independent distributors lean towards a year end “bonus” while larger organizations prefer to go to market with the strongest prices provided by the lower invoice amounts.
It all comes down to this: suppliers can build good will with year end bonuses they call rebates or they can invest in growing business. Both are important. But understanding that rebates that mimic what goes on in retail are not buying the end results suppliers think they are. Distributors are generally reluctant to assume they will receive the promised “rebate” and adjust their pricing or increase their marketing support for the supplier’s line. By changing an “if come” potential discount to a guaranteed discount, the chances of buying what the program was intended to buy (more sales) has a much better chance of success.
Gregg Emmer is chief marketing officer and vice president at Kaeser & Blair, Inc. He has more than 40 years experience in marketing and the promotional specialty advertising industry. His outside consultancy provides marketing, public relations and business planning consulting to a wide range of other businesses and has been a useful knowledge base for K&B Dealers. Contact Gregg at gemmer@kaeser-blair.com.