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Best practices for B2B rebates and incentives

by 
 
May 13, 2019

Creating value from B2B rebates and incentives: incentive compensation software, ROI tracking, promotion personalization.

Are you sure that your promotional strategy brings you the ROI you want? Are you able to track and manage all the incentives you offer? Can you tell which discounts bring you the most value?

As a B2B company, the relationships with your customers are your focus. CRM is the core of any well-functioning B2B business. Loyalty and upselling are the main pillars of your sales strategy. You offer preferential payment terms, volume deals, vendor rebates or incentives. You know this is the best way of offering the “right price” without driving the price downwards.

The main question is, do your rebates and incentives bring you enough ROI?

We know the common pitfalls of discount management for B2B companies and the difficulty of 1:1 tracking the deals you make with your customers. That’s why we have prepared a short overview that explains how to best manage, track, and optimize your rebates and incentives. In this post, we will show you how to bring your pricing and CRM strategy to the next level and how Voucherify can help you with that. We will also give you some ideas for rebate and incentive programs.

As the BCG research shows:

In most B2B industries, discounts represent a company’s largest marketing investment, often amounting to 30% or more of list-price sales. However, companies often neglect to make this important investment strategically. Without clear and effective guidelines in place, discounts do not create the value they could. Even worse, they often destroy value.
Designing (…) a discounting strategy requires a shift in mindset from treating discounts as a cost of doing business to seeing them as a strategic and deliberate investment.

A rebate is a discount like any other. A $1 invested in a rebate has an impact that can be quantified, in volume, product mix (the one that the dealer purchases from you), or retention benefit. This can and should be quantified in a way that helps to compare rebate effectiveness.

The most effective organizations ensure near-real-time monitoring of discounts.

Why do incentives and rebates make a better pricing strategy?

If you simply lower your price to become more attractive, the following scenarios could happen:

- all your other customers will expect the same (lower price) and/or,

- your competitors will react by lowering their prices thus creating a price war.

Either option impacts profit margins and your relationship with your customers.

The solution to the difficult pricing game is keeping your prices stable and differentiating the price by offering sales deals, volume deals, better payment terms, incentives, rebates to chosen customers. Best practices ensure that rebates deliver the desired price, volume, and product (or product line – portfolio-level) mix and that the complexities of rebate administration do not outweigh the commercial benefits.

Rebates can be refined to foster specific customer behaviors such as growth, retention, product mix improvement, or purchases of bundled offers. Like other forms of discounts employed to modify behavior, rebates allow sellers to communicate to customers how the customer receives the lowest price.

Before implementing your rebate strategy, your organization should tackle the following questions:

- Setting goals: for each channel, customer, or segment, what behavior are you trying to achieve?

- For each desired behavior, which type of rebate to employ (and to whom)?

Once you have your strategic goals set, you should move to more operational questions:

- How to personalize those offers (so that you are sure the customer who receives the offer is actually worth the spent)?

- How to track the use (redemptions) and ROI of those offers?

- How to make the management of the incentives and rebates quick and easy?

How to manage your rebates and incentives (quick and easy)?

One of the examples (that the BCG report points out) of how inefficient sales deals can be is giving volume discounts to all customers.

If you offer the same discount to all customers on the volume deal basis:

  • you might be increasing your production costs (you need a big capacity but only from time to time),
  • you might be losing money offering a discount that does not bring you more sales but just shifts the orders from regular, small batches to punctual, big orders.

The main pitfall here is the lack of:

  • personalization of offers,
  • strategic goals,
  • tracking of the impact of the discounts on customers’ behavior.

The best approach to avoid this (and other) pitfalls is setting the KPIs for your promotional strategy, personalizing your rebates and incentives offer both on the customer level (customer segments, customer behavior) and on the product level, and tracking, tracking, tracking.

We know that all this sounds great but is difficult to implement. Rebates, especially if personalized, increase the complexity of pricing processes, adding administrative costs and complexities.

We have a solution to this.

Voucherify rebate management software helps to automate and track the entire incentive management lifecycle. Using the Voucherify solution, companies can quickly implement many different kinds of incentives and rebates and personalize them for each of your customers, 1:1.

It helps sales or marketing teams easily create incentive or rebate programs (without the need to involve IT, besides the initial system integration) as well as track the rebate redemptions and incentive payouts (protecting you from fraud and giving you a clear view of the effectiveness of your incentive program with your overall sales and margin performance). Here is the overview of how the promotion (rebate, incentive) management program of Voucherify can support you through the whole incentive lifecycle:

Creating incentives and rebates (with Validation Rules)

Offering them to chosen segments or chosen customers (1:1 personalization)

Validation of the rebates or incentives (against the validation rules you create)

When you correctly accrue, validate, and pay claims on a single solution, you prevent incorrect payouts that negatively impact margins. As a result, you meet your growth objectives while also meeting margin targets.

Tracking, ROI calculation

Many companies do not have a system of record for rebate information (promotion management system). Rebate information is often kept in a spreadsheet by one person. Rebate accruals are managed in yet another system. It is very difficult to consolidate and track the data on a regular basis. Voucherify provides the finance department with greater certainty, keeping information accurate and up-to-date.

What kind of rebates to offer?

We have compiled for you a couple of ideas for value-based rebates and incentives you can implement for your customers to drive the desired behavior, improve your margin, profits, and product mix:

1 — Product Launches

The standard approach: for example, a supplier might offer an extra 1% discount across the entire product range in exchange for a spend of $x on the new product (or purchase of y pieces of this product). Can be targeted at customers who have never purchased this product or at those who tend to place repetitive orders.

2 — Stock clearance

As old versions are being phased out, suppliers might plan to ship as much of the remaining stock as possible before the new version appears. This is sometimes achieved through extra volume discounts on the old lines.

3 — Product mix incentives

To encourage customers to make purchases across a wider range of products, suppliers might provide a rebate based on total spend over a period. Where the buyer usually buys only a few lines, this incentive is used to try to switch them away from other suppliers for other product lines

4 — Conditional discounts

Some examples include:

  • A rebate on a product range, provided the volume purchased exceeds x in y months
  • A discount on one product range dependent on purchases of another. If you buy x of these you will get a discount of y off those.

5- Referral programs

Yes, you can launch B2B referral program, especially if you are selling the product directly to the B2B customers (they are not your dealers). For most software companies, it can be a cheap way to gain more customers, an example of a good B2B referral program is Google’s G Suite referral program.

Those are just the most popular rebates we have summarized for you. There are plenty of possibilities out there and with Voucherify promotion management system you can set up all the validation rules by yourself either for specific customer segments (that can be set up in the Voucherify platform or copied from your CRM system, spreadsheet or any other data storage you use for your CRM) or on 1:1 basis, following your contractual agreements with your clients. The full lifecycle of rebates and incentives can be managed in one platform, quick and easy. Automated reports will support your financial and sales teams in defining the best promotional strategy for your B2B business. Voucherify can help to implement your rebates and incentives strategy in the most efficient and quickest way. Integration of Voucherify API is very quick and the documentation comprehensive and detailed. See what our clients say about us here.  

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