In the B2B world, having an effective pricing strategy is paramount to cementing a large and loyal customer base. Discounts are frequently offered as part of promotional strategies and sales incentives and will often represent a large percentage of a company’s marketing investment. However, all incentives need to be made strategically and offering discounts on things like volume-based purchases is risky and will often fail to create the long-term value you’re looking for.
Every promotional strategy needs to bring in a favourable ROI – and this is precisely why B2B rebates are a far more effective and reliable pricing strategy than discounts. If you’re not using rebates, you’re likely not driving value-creating behaviour amongst your customer base – or, even worse, giving your customers bigger discounts than they deserve.
The problem, however, is that despite their value, B2B rebate programmes are inherently more complex than simply offering discounts, which is why they are often avoided. This means that robust rebate management tools and processes are required in order to ensure you’re offering the right price to every customer without eroding your margins, in an easy to manage environment.
Why Rebates Are a B2B Pricing Best Practice
Why are discounts so ineffective and risky? There are, in fact, many reasons. Some B2B companies might be described as fixed discounters – they offer pretty much the same discount to every customer they have. The problem here is that such a pricing strategy doesn’t reflect differences in certain customers’ willingness or ability to pay and can therefore quickly start to impact profit margins. It also fails to incentivise and reward value-creating behaviour from the more reliable and loyal members of your customer base.
Even if you’re not a fixed discounter, if word gets out that you’re offering a lower price to one customer, all of your other customers will start to expect the same. This can potentially lead to more trouble. If you submit to these demands and start lowering your prices across the board, though it may make you more attractive in the short term, your competitors will soon react by lowering their prices too, creating a price war that will inevitably impact profit margins and your relationship with your customer base.
And what about volume-based discount pricing strategies? Where’s the risk in those? Well, consider the following scenario. You have a product that usually costs, say, £100 per unit. One of your customers contacts your sales team and negotiates a discounted price of £90 per unit based on buying 1,000 units over a 12-month period.
In an ideal world, this should all work out perfectly. The discount pleases the buyer and incentivises them to buy more volume, while larger volume sales over the upcoming year is good for business for the selling company. However, by offering the volume-based discount upfront, the seller takes on the risk that the buyer may not fulfil their end of the bargain – over the course of the year, the customer only buys 500 units and pays just £90 for each of them, putting the seller out of pocket.
Rebates solve this problem instantly. With a rebate programme in place, the buyer in our above example pays the full £100 per unit bought upfront but only receives the discount – this time as a rebate – once full purchase of the agreed-upon volume has been made. In this way, the buyer still receives a better price per unit than the list price (thus incentivising larger purchase volume) but the risk of non-compliance lies with them.
It’s not just larger volumes of purchases that rebates can incentivise. They can be refined to foster other value-creating customer behaviours as well, such as growth, retention, product mix improvement and purchases of bundled offers.
All allow you to develop incentives that will ultimately enable your customers to get the lowest price you are able to offer – but the burden of realizing that price falls on the customer, as they will only ever receive the rebate once they have met all the terms thrashed out in the initial agreement.
Nonetheless, rebates increase the complexity of the pricing process – especially as you start to offer different types of rebate on different products to different customers, not to mention personalising offers to chosen buyers to incentivise or modify certain behaviours. And this is where you will need rebate management software to streamline your processes and ensure that the complexities inherent with rebate management do not outweigh the commercial benefits.
Rebate Management Made Simple with Purpose-Built Software
Rebate management software solutions allow B2B organisations to quickly and easily implement many different kinds of rebates and personalise them for each member of their customer base. The best tools on the market offer robust calculation engines and deal modelling features that give you the insights you need to formulate the best deals and ensure that you’re getting the best ROI on all your rebates and incentives.
Using these tools gives you access to advanced analytics that will enable you to determine which type of rebate to employ – and to whom – to drive desired customer behaviour. Deal modelling features allow you to plan different rebate scenarios for modelling and forecasting, so you can understand the impact of any rebate you offer before agreeing it commercially with the customer.
This enables you to not only start designing personalised offers for specific customers that encourage them to take certain actions – purchasing X number of products in Y months, for example, or spending £X on a new product line to receive a rebate worth £Y per unit on their usual order – but allows you to evaluate the financial impact of each of those actions as well, so you can set prices accordingly.
All the while, the rebate management software allows you to track the full life cycle of each of your rebates.The calculation engine processes your data against your agreements in real-time and generates detailed, automated reports that will help your financial and sales teams define the best ongoing pricing and promotional strategies for your B2B business.
Achieve Pricing Perfection with e-bate – The Ultimate Rebate Management Solution
In order to maximise margins and achieve pricing strategy perfection, you need to move away from offering discounts and towards developing a robust and strategic rebate programme. However, to deal with the complexities of such a programme – and ensure it is flexible enough to offer different types of personalised rebates to different customers – you need powerful rebate management software at the helm.
e-bate’s intuitive rebate management software comes with a built in calculation engine allowing you to track and analyse all data against your agreements in real time, while our robust deal modelling features allow you to make rapid assessments of the benefits of any deals you are negotiating and overcome the complexities of designing winning pricing strategies.
The platform automates every element of the rebate process, eliminating spreadsheet reliance, reducing overheads and helping companies manage pricing and increase revenues and profit while ensuring compliance through a full audit trail and comprehensive approval workflows. e-bate is your single source of all rebate information, providing you with the insights you need to make proactive decisions that drive business value.
Request a demo or get in touch today to find out more about how e-bate can both simplify and improve your rebate management.
