Effective pricing is a continuous balancing act. Prices need to be low enough to attract and retain buyers, yet high enough to cover costs and turn a profit. Fail to strike this balance and you either lose customers to rivals who offer better rates, or you end up reducing your margins to the point where any sales you make are no longer profitable. Pricing strategies should aim to maximise revenue and profit, attract new buyers and improve customer loyalty.
Offering rebates is one of the most effective ways to do this. A successful rebate pricing strategy will not only increase sales but protect your margins and cement profitable relationships with buyers for the long term as well.
Nonetheless, offering a rebate still amounts to a price concession – and the more you give away, the less money your organisation makes.
This means that robust rebate management tools and processes are required to ensure your rebate pricing strategy achieves its intended outcomes without eroding your margins to unsustainable levels.
Keeping Sales Profitable
Rebates reward favourable buyer behaviour while protecting price. Compared to discounts and blanket price cuts, rebate programmes are a superior sales and marketing strategy for a number of reasons.
When an organisation resorts to slashing prices in order to increase sales or attract new customers, though it may see favourable short-term results, the long-term consequences can be less than desirable. Aggressive price cuts inevitably affect how the buyer views the product and the price they expect to pay for it – both now and in the future. Lowering the price of an item has an impact on its perceived value and buyers will be reluctant to pay more for it should you want or need to raise the price again at a later date. Lowering prices can also lead to a price war with competitors, resulting in the permanent price erosion of your products, which will impact both your margins and your relationships with buyers.
Offering upfront discounts on your items is similarly risky – especially when attaching them to volume-based purchases. The trouble here is that buyers will often promise to buy a certain volume in order to access the discounted price – but end up buying fewer items, leaving you out of pocket.
Rebates solve both problems. With an effective rebate pricing strategy in place, there is no need to lower the list price of an item – thus protecting its perceived value. Instead, the special price is only awarded – as a rebate – once full purchase of the agreed-upon volume has been made. This ensures volume compliance and reduces margin erosion on low-volume orders.
Rebates aren’t confined to the realms of volume discounts, however. They can be used to incentivise other types of value-generating customer behaviour as well. Aside from volume incentive rebates, there are value incentive rebates, growth incentive rebates, product mix incentive rebates, retention rebates and many more besides.
However, even with all the benefits of a rebate pricing strategy, tracking and managing all the incentives you offer is a complex affair, especially when trying to protect your margins and maximise the profitability of each – even more so as you start to offer different types of complex rebates on different products to different buyers. This is where rebate management software needs to come into play.
Rebate Management Software
Best practices for managing a successful rebate pricing strategy ensure that any rebates you offer remain profitable, drive intended outcomes and give you full control over how buyers benefit from the deals you offer.
Rebate management software allows you to model and determine the profitability of your deals before you agree to them commercially. Naturally, buyers negotiate hard to achieve the best deal possible, but it’s no good offering too large a rebate in order to make a sale if it means the sale itself will not be profitable. With a powerful rebate management system, you can plan different rebate scenarios for modelling and forecasting, so you can understand the financial impact of any rebate you offer and how far you can take your rebates before they become unprofitable.
Another key problem that rebate management software solves is spreadsheet reliance. Spreadsheets are neither a safe nor scalable solution for managing a successful rebate pricing strategy. They are cumbersome, complicated and make it extremely difficult to scrutinise the data they contain to uncover whether or not a rebate is profitable. Today’s most sophisticated rebate management systems calculate rebates automatically and in real-time using powerful calculation engines that visualise data to make it simple to understand. What’s more, they recalculate rebates when things change, meaning that not only can rebates be tracked for every single update that occurs, but also that the performance of each rebate can be easily analysed. This is crucial, for the insights gleaned during analyses can be used to model new deals, create accurate forecasts and facilitate more profitable decision-making.
Once all rebate information is stored and made accessible from a centralised, cloud-based rebate management system, it becomes much easier to establish a streamlined process for authorisation workflows and approvals. This is important, as there needs to be a strict sign-off process for rebates. Rebate management software comes with configurable workflow engines, which ensure that all agreements – and any changes to those agreements that occur – are audited, processed and approved by appropriate parties in a timely and efficient fashion. Automated notifications are sent to alert relevant individuals whenever their actions or approvals are required, ensuring that all rebate agreements are being proactively managed.
Create a Successful Rebate Pricing Strategy with e-bate – The Ultimate Rebate Management Solution
Building a successful rebate pricing strategy means having access to the right data at the right time. You need to keep constant track of your rebates to determine which ones are working, which ones aren’t and how your programme is impacting your overall profitability.
e-bate is the ultimate rebate management solution – a purpose-built platform delivered as a SaaS and designed from the ground up to help companies optimise their rebate management processes and pricing schemes. With a built-in calculation engine, automated workflow engine and robust deal modelling features allowing you to make rapid assessments of the deals you are negotiating, 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.