How manufacturers use rebates to increase customer loyalty

Posted by Elizabeth Allcock on February 17, 2020 11:09:53

Customer loyalty is a measurement of how likely your customers are to do repeat business with you. In this case we are talking about manufacturers collaborating with distributors, who are effectively the link between the manufacturer and retailer. Without distributors, manufacturers would struggle with getting their products to customers, and without manufacturers, distributors would have nothing to sell.

Repeat buyers are your most valuable customers, they make up just 8% of visitors, but can deliver a whopping 40% of revenue—making them a profitable segment for your business. Unfortunately, loyal customers don’t happen overnight, but by manufacturers investing in rebates to increase their customer retention they can dramatically grow their bottom line.

In fact a study by Aberdeen report has found that almost half (48%) of manufacturers use rebate systems as part of their customer loyalty and promotions mix. Plus, the top driver of rebate usage in manufacturing is having an advantage over their competitors (61%).

Rebates are a great way manufacturers can incentivize their customers (merchants or distributors) to buy more of their goods and sell specific products within a specific time. Read on to learn how.

Why customer loyalty is important for manufacturers

Manufacturers know that customer loyalty is imperative if they want their business to succeed, otherwise they may experience the negative impact of something called customer churn. While some churn is a normal part of any business, a high churn rate can affect the growth of any business.

Manufacturers understand that the world is changing, with evolving customer needs and expectations - plus technological innovation - reshaping communication between manufacturers, distributors and end customers is key. Plus the best way to retain customers and keep them happy is to make life as easy as possible for them.

 Customer loyalty stats:

  • 65% of a company’s business comes from existing customers.
  • It costs 5 times more to acquire a new customer than it does to retain a returning one.
  • Lowering your customer churn rate by 5% can increase your profitability by 25 to 125%.
  • 90% of customers say they are brand loyal

Incentivise with tiered rebate agreements

Having an annual rebate agreement that is tiered typically incentivises the customer to spend with you consistently throughout the year rather than shopping around for the cheapest price each time. This means focussing on competitive pricing can be less important.

For each target tier in your rebate agreement, you can exponentially increase the benefit to your customer, putting the benefit in their hands. It may seem obvious to look around for the cheapest price at the point of purchase, but this can be a considerable admin burden. If you know you will purchase one good in large quantities, striking a good rebate deal is more beneficial for all parties and can even be cheaper than shopping around!

A simple example is a tiered structure where a customer can earn a 1% rebate if they purchase 1000 items, but 2% if they purchase 2000 and so on. This keeps your customer coming back to you so that they can hit that next tier and receive a retrospective rebate which can even ease a customer’s cash flow issues at year end!

Negotiating rebate can help to improve relationships

The closer a B2B relationship is, the better deals you will be able to negotiate. You should always explain the parts of the deal you’re happy with, as well as what you’d most like to change. If your price is higher than a competitor, try letting the customer know why and what they are getting for the additional cost. You can also build trust by getting to know their goals and turning your attention to other aspects of the rebate agreement.

Although it’s difficult for a company to offer special conditions to a customer who buys only once, it will certainly do so in the case of large and recurring purchases. Therefore, you should strive to strengthen relationships based on collaboration.

We know from our own clients that manufacturers can have problems negotiating and collaborating with their distribution companies. Distributors can have extremely demanding requirements, and if their needs are not met the relationship will weaken. That’s why we have created Collaborator - a collaboration platform that increases engagement, facilitates negotiations, reduces admin time and improves communication.

From using a platform like this manufacturer and distributors should be sharing strategic objectives, adopting an inclusive approach towards each other and exchanging knowledge freely. And because they share mutual goals, they should be highly motivated to help each other and negotiate better deals.

When concluding a negotiation both sides should be left feeling comfortable and happy with the agreement. Negotiations can be unsuccessful if either side feels forced into a corner. Just remember that profitability can depend on healthy relationships, so always keep this in mind when negotiating. If you can successfully remove the obstacles to negotiation and make it easier to deal with you than one of your competitors, you can use this as a competitive advantage to increase loyalty, even if your prices are comparable.


Rebate management systems for manufacturers

For manufacturers, rebates are a way to serve their customers better and to engage in a joint go-to-market strategy. They see rebate management as an essential part of their growth strategy and treat customers as true partners. These are the kinds of manufacturers who are turning away from spreadsheets and towards software to help them manage customer rebates far more efficiently.

Focusing on their customers is also a new way for manufacturers to look at the market, one that causes operational questions as well as concerns about technology gaps. But luckily advancements in rebate management software has resulted in significant improvements to the consumer’s overall experience and improved rebate data collection capabilities for manufacturers.

They know that a good customer rebate management approach allows them to grow their market share and their footprint, which ultimately means their customers will be more likely to choose their goods over their competitors’ ones. And the more of their product is sold, the more their business stands to benefit.

If you want to see higher customer retention and satisfaction, consider using DealTrack to achieve them.

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Topics: Rebate Management System, Rebates