The sale of goods to consumers may appear simple on the surface, but when you delve down deeper into the processes involved in sourcing products, negotiations between buyers and suppliers, contract handling and rebate claims and payments, the truth is there is a whole lot more to retail rebate management than meets the eye.
In the industry, it is a common practice for retailers to return unsold items at the end of the season to the manufacturer and obtain partial refunds. This is called a sale or return agreement and is a type of rebate. Rebates are a common mechanism for a manufacturer to encourage a retailer to increase their order quantity, and they come in multiple types used up and down the supply chain.
However, it is suggested that a manufacturer should offer “scan back” rebate programmes, in which the retailer receives rebates based on actual sales rather than order size, to ensure that the rebate value is passed on to customers. Here are some examples of popular sales-based “scan back” rebate programmes that are used in retail:
- Linear rebates – a fixed rebate value for each unit sold.
- Target sales rebates—a fixed rebate value for every unit sold after a pre-specified target level
- Progressive rebates— Each unit sold gets a progressive rebate value based on different tiers. It’s worth noting that the progressive rebates programme is a subset of the target sales rebates programme, which is itself a subset of the linear rebates programme. The target sales rebates programme can coordinate a two-level supply chain when the retail price is given exogenously.
Under a linear rebate, the manufacturer is encouraging the retailer to exert additional effort and order a larger quantity by increasing the retailer’s marginal revenue. The manufacturer, on the other hand, is solely responsible for boosting the retailer’s marginal revenue.
Alternatively, the manufacturer can benefit from a target sales rebate. This type of retail rebate is paid back for every unit sold over and above an agreed and defined sales target. So, the amount paid depends on the performance of the retailer at the end of the chain with the consumer.
In retail, rebates can be used to attract new buyers, persuade them to test your product, and encourage existing accounts to raise their orders. It is important that, should you use rebates for retail, they are managed appropriately. e-bate is a cost-effective web-based tool for decision-makers that need to develop and manage their rebate management.