“Sorry, we’re increasing our prices..”
It’s a tough statement to make and few commercial leaders want to make it, but raising prices nearly always makes economic sense. Particularly whilst raw materials and manufacturer prices are so volatile in the inflationary environment we find ourselves currently tolerating.
Margin erosion has to stop sometime and a price rise can halt it. But, there’s a reluctance and uncertainty we feel around our own price increases which is rooted in the possible reaction from the market; will customers reduce their order volume? Will they move to or diversify amongst your competitors? Will your competitors follow your lead?
Good and well-seasoned Pricing Managers will look at everything they can do to prevent a price rise in core product lines before taking action. From reducing general overheads to finding more efficient processes or diversifying material or manufacturer supply.
However, if a price rise is on the horizon, one area that is sometimes overlooked which can offer an alternative to hiking prices, is rebates. Rebates are a tool to drive a more strategic and transparent relationship with your suppliers and your customers, and which can help to negotiate more attractive deals that put you in a better financial situation longer term, removing the need to up prices. Regardless of whether you’re a supplier or a buyer, offering or negotiating rebate deals instead of raising prices protects your margins and allows you to remain competitive in a market teeming with companies giving into the price rise push.
So when you’re analysing your financial position and looking for ways to prevent profit erosion, go further than the P&L sheet and instead ask yourself if you could use rebates to leverage your position. And, rather than diversifying your supply, could you focus more on longer term relationships featuring stronger rebate-based incentives? Can you offset the pain and uncertainty of a price rise to your customers by re-structuring your rebate programme and, again, focusing your efforts on your biggest or highest yielding potential customers? A good rebate strategy (alongside automated rebate management) is the secret weapon in the arsenal of most businesses, yet it remains untapped for most.
Rebates is such an important factor in the profitability of sectors such as distribution and pharma, it should be always on the agenda. But oftentimes it’s not. A CEO of a veterinary company recently said to me “Rebates in the pharmaceutical sector are massive, but so many companies still manage them on excel, I don’t understand it”. We know this. Our customers have converted from it. But we also know there are many priorities in businesses of all sizes. But, when there’s a monster rebate spreadsheet being used by everyone and so far, (to your knowledge) there haven’t been any mistakes, the question is, how do you know? How can you be sure there are no duplicates of it? That there’s not V.32 hiding out on Jonathon from Accounts’ desktop? Are you 100% certain there isn’t a mistake in any one of the cells in your giant spreadsheet that could be causing havoc with your calculations?
When it comes to rebates, you need your data in one place. Data that can be manipulated, tracked and reported. A single source of truth and a facility to test new ideas and structures. You need rebate intelligence so you can see round corners and act quickly, because hindsight is a wonderful thing, isn’t it?
The starting point is to consider if rebates figure in your planning and strategy conversations with purchasing and sales colleagues. If they don’t, it’s time to reconsider, because rebates might just be the solution that helps you ride this pricing storm out.
If you want to learn more about how intelligent rebate data can help you shape your strategy, and how automating the rebate process can help, get in touch with our rebate specialists today.