The idea behind rebates is simple -- give suppliers and distributors a set of financial incentives to continue doing business together. These incentives include retrospective payments to align orders with actual volume, payments or other inducements that encourage distributors to stock a wider array of products or rewards for sales growth and other positive business outcomes. Rebate programs vary dramatically depending on the nature of relationships between suppliers and distributors, market conditions and many other factors.
Although rebates are simple in theory, they can be complex in practice. This is why it’s important for companies to have a centralized and accessible rebate management platform to keep track of their agreements with partners, address disputes proactively, adapt to changing circumstances and renegotiate deals when necessary. However, companies should also be aware of the general types of rebates out there so they can make an informed decision when structuring their rebate platforms with their partners.
With that in mind, here are the Top 7 most popular categories of rebate deals.
- Product launches
When suppliers are trying to get a new product to market as quickly as possible, they often want distributors to make significant purchases. There are several ways they can use rebates to increase the volume of new product orders, such as offering a discount on other products or increasing compensation for hitting certain sales targets.
No matter what rebate strategy suppliers use, it’s necessary to have a system for tracking performance, managing and updating agreements and arbitrating disagreements.
- Product terminations
Just as suppliers frequently want distributors and retailers to stock and sell a certain amount of new products, they also want to clear old inventory, especially when a launch is planned or in progress. Companies can move old products more quickly by giving their partners large-volume discounts, adjusting rebates based on new sales targets and offering deals on future products.
- Growth incentives
While some rebate programs focus on specific product lines, others are built around overall order growth. There are many ways suppliers can reward partners that purchase larger quantities of products, such as the application of rebates if actual volume is greater than certain targets over a set period of time. Suppliers often use incremental rebates, which are based on fluctuations in annual growth rates – an incentive to keep selling and ordering as much product as possible.
- Product diversification
When suppliers have limited agreements with distributors (i.e., they only provide a single product line), they’re often eager to expand the scope of their partnership. Rebates are among the most effective tools for doing this because they allow suppliers to leverage their existing arrangements to convince distributors to order a wider range of their products.
As supply chains become increasingly complex, companies are sourcing their products and materials from a wider variety of partners. This means there are many opportunities for suppliers to use rebates proactively to make their products more appealing than competitors by providing discounts on their current product line in exchange for the inclusion of new product lines, for instance.
- The use of central distribution centers
Many suppliers use central distribution centers (CDCs) to reduce transportation, personnel and warehousing costs. This can simplify the delivery process for distributors, especially if they already have transportation routes to the relevant centers. Instead of having multiple shipments arriving at different times and from different sites, distributors know that their products are located in a single CDC. This makes it easier to address problems like lost or damaged products, unfilled orders and other inefficiencies – core elements of end-to-end visibility, which many supply chain executives say they lack.
Suppliers can incentivize the use of CDCs by providing rebates to distributors that are willing to move products from the centers to their final destinations.
- Marketing allocations
Suppliers are working with distributors on an ever-broadening range of issues, including marketing campaigns, particularly when they’re rolling out a new product in a local market. Supplier-funded marketing is mutually beneficial, as it allows suppliers to get exposure and market data from distributors that know certain markets better than they do, while providing those distributors with free or low-cost marketing. However, many suppliers will also make the payments contingent on the effectiveness of the campaign in the form of sales and exposure.
- Conditional rebates
There’s a functionally limitless number of rebates that trading partners can agree to: discounts based on the amount of products distributors order, incentives that reward distributors for meeting sales targets, transactions at certain locations and the purchase and sale of specific product lines. Considering the vast array of rebates out there, it’s clear that companies need a way to negotiate, track, and implement agreements of all kinds, which is exactly what digital rebate management solutions are designed to do.
According to a recent PwC report, 81% of digital leaders in the supply chain sector “describe their supply chain focus as external integration.” Rebates are powerful tools for supply chain integration because they align companies’ goals, increase accountability and transparency, and ensure that suppliers and distributors have compelling reasons to maintain their relationships.