Tags: Incentives & Rebates
Rebate Processing - Behind the Scenes of Rebates
Rebate processing is when a financial incentive between a seller and buyer is agreed upon, tracked, and claimed. Rebate programs are implemented as a way to increase sales growth, while protecting price integrity. The rebate acts as a payment from the seller to the buyer, which is paid retroactively to the buyer after the agreement has been met.
Rebates are generally based on the purchase of a particular volume or value of goods over a specific period of time. Once the goal incentive is met, the buyer can claim their rebate reward. Rebates are not to be confused with a discount, as a discount would be applied at the point of sale, whereas a rebate is issued after the sale.
What Are Examples of Rebates?
There are many different types of rebate programs, which depend on the industry they are being utilized and the trading partners involved. Some rebates are simple, while others are more complex. There are two types of overarching rebates, a vendor rebate and a customer rebate.
A vendor rebate is paid to a merchant or distributor, issued by the vendor or supplier. A customer rebate is paid to a customer, issued by the manufacturers. Listed below are a few types of rebates with examples of how they work.
Fixed Monetary Rebate
For a fixed monetary rebate, the reward of the rebate does not change and is assured to be paid at the end of the agreement. It is one of the simplest rebates.
For example, a technology retailer is selling computers. The cost of a computer is $1,000. There is a current mail-in rebate for $200. The buyer will purchase the computer for $1,000 at the store. Afterwards, the buyer will be able to claim their rebate reward of $200.
Fixed Volume-Based Rebate
For fixed volume-based rebate agreements, rebates are rewarded once the volume based turnover targets have been reached. This means that the buyer has to surpass a certain number of goods purchased before they are rewarded.
For example, a home improvement retailer is selling roof shingles. The cost of a bundle of shingles is $100. There is a current mail-in rebate for $10 per bundle for purchases of 50 bundles or more. The buyer purchases 50 shingle bundles. Since the buyer met the required incentive, the buyer will be able to claim a rebate reward of $500.
Fixed Value-Based Rebate
For value-based rebate agreements, similar to volume-based rebates, rebates are rewarded once the value based turnover targets have been reached. This means that the buyer has to surpass a certain monetary value of the product.
For example, an automotive supply manufacturer is selling tires. There is a current mail-in rebate of 5% for purchases of $50,000 or more. An automotive repair shop purchases $50,000 worth of tires. So, the automotive repair shop will be able to claim a rebate reward of $2,500.
Fixed Percentage Rebate
For fixed percentage rebates, rewards will be issued based on the set percentage of gross sales. For example, a coffee wholesale supplier is offering a 10% mail-in rebate of a buyers’ total purchase. A coffee shop purchases $1,000 worth of coffee beans. Therefore, the coffee shop will be able to claim a rebate reward of $100.
Growth Based Rebate
For growth based rebates, rewards will be issued if the total amount of volume or value of sales purchased surpasses the previous year. This type of rebate is designed to increase total sales on a year-to-year basis. It also builds a loyalty incentive, as it gives the customer a reason to return each year.
For example, a clothing retailer purchased $1,000,000 of goods from a clothing manufacturing company in 2021. The manufacturer is offering a fixed mail-in rebate of $10,000 if the buyer has a baseline growth of 2%. In 2022, the clothing retailer purchased $1,020,000. So, the clothing retailer will be able to claim a rebate reward of $10,000.
How Do Rebate Programs Work?
The first step to having a successful rebate program is deciding on a rebate incentive agreement. This should be decided based on the products being sold and the target audience. Once the rebate agreement has been implemented, it is marketed to new and existing customers.
The rebate incentives are typically based on volume, value, or percentage. Rebate programs aren’t always straightforward. They can consist of a tiered growth-based rebate that depends on the target turnover and earning turnover. With the different varieties of rebates, it’s important to implement an efficient processing system to manage the rebates.
Over a period of time and purchases, the customers may meet the incentive rebate goal and can submit their claim. When the claim is verified and processed, they will receive their rebate reward. Rebate programs are complex and can even be frustrating at times, but with the proper knowledge and tools, it can be done successfully.
6 Steps to Successful Rebate Processing
The rebate program has been implemented and customers have been purchasing goods. Once they reach the incentive goal, it is time to claim the rebate reward. Below are the processing steps.
1. Receive and Scan
Depending on the rebate program, customers can send their rebate in through mail or digitally. Digital submissions can typically be done through text message, an app, or online portal. Once the submission is received, it will be sorted and scanned into the system. This typically happens within 36 hours of the receipt.
2. Data Entry
Data from each submission will be read, verified, and then entered into a campaign finance reporting form. Accuracy is critical for this step, discrepancies can happen easily in a meticulous process like this.
The processor should have an efficient system set into place to ensure no mistakes are made, and if they are, that they are corrected accordingly. From there, based on the data entered, the submission will be approved or denied.
3. Customer Service
Keeping the customer in the loop about the status of their rebate keeps the customer happy and is more likely to ensure customer satisfaction, resulting in them to continue purchasing goods.
Customers appreciate knowing when their rebate claim has been received, when it has been processed, and of course, when it has been approved. Assuring customers the status of their rebate, reduces any confusion or worry that may occur.
4. Validation and Fraud Detection
Each rebate submission will be verified for validity and accuracy, as well as ensuring it aligns with the set required guidelines of the rebate program. Whether it is a computer processing the submission or a human, common mistakes can occur.
Mistakes can include incorrect receipts, repeat submissions, suspicious documents, and so forth. In order to maintain a profitable incentive program, the seller has to confirm there are no invalid or fraudulent claims.
5. Invoicing and Funding
Now that the rebates have been processed, the seller is able to determine the amount of valid submissions. If this step is not managed properly by accounting, it can be the most common cause of delays in rebate fulfillment. To avoid these delays, it is best for the seller to pre-fund the rebates in their account.
6. Reward Fulfillment
Finally, after the previous five steps, the customer is now able to receive their reward. The reward may come in a physical or digital format. It takes as little as two days for the reward to be delivered in the mailbox, on the other hand a digital delivery can be instant.
It typically takes around two weeks for the customer to receive the reward after the claim is initially submitted.
Rebate Programs Measuring Success
Rebate programs should drive sales, not frustration. Unfortunately, many organizations fail to maximize the potential of their rebate offers and lose sight of what makes them so valuable in the first place.
- Companies offer rebates for three primary reasons:
- Gain market share
- Reduce competitor market share
- Increase sales
While customers love rebates, it’s more about offering a better deal to boost short-term sales and gathering customer data to boost long-term sales. Rebate programs are powerful tools under the right strategy.
Rebates VS. Discounts
Discounts and rebates are the same, right? Not exactly.
Discounts offer a lower price to everyone who purchases the product. When offering a rebate, there is the perceived value of a discount. However, rebates require a little extra work on the part of the customer. Not every buyer follows through with the steps to claim, allowing a portion of the sales to be at full price.
Smart organizations measure the success of their rebate programs against preset benchmarks. If the company sold more units during the rebate period than usual, the rebate might have impacted that upswing.
Sellers should solicit customer feedback to discover whether the rebate influenced purchasing decisions or whether the boost happened for unrelated reasons.
Increased sales aren’t the only way to measure a rebate program’s success, though. Every company wants something slightly different.
One organization might prioritize volume over profit to establish a new product, while another might aspire to win a higher percentage of sales over a competitor. The definition of success depends on the needs of the company running the program.
Creating a Successful Rebate Program
No company can measure success without establishing expectations. Anyone who runs a rebate program needs to set specific, measurable goals before launching a rebate program.
Below are four common goals companies set for their rebate programs and the optimal strategies to meet those goals.
1. Higher Sales and Market Share
The most straightforward goal is also the easiest to measure. If the company sells more during rebate periods (and if customers indicate the rebate influenced their purchasing decisions), then the rebate was successful.
Research suggests that 75 percent of customers are more likely to make a purchase if a rebate is offered. And four in five customers are willing to fill out surveys during rebate redemption, so ask about that factor during the redemption process.
2. New Customers
Breaking into new markets isn’t cheap. With a rebate program, companies can entice new audiences with lower prices without sacrificing as much revenue as they would with a discount.
One survey from Access Development found that 60 percent of Millennials are open to changing brands to get a benefit, such as a rebate. Offer a rebate to new audiences and compare that market growth to areas that did not receive the same offer.
3. Improved Understanding of Customer Behavior
Some companies don’t know exactly who their end customers are. Rebate programs allow companies to engage with end-users while collecting valuable consumer information during the rebate redemption process.
The data captured provides insights into specific demographics that prefer certain products which can be used to improve products and services. Additionally, marketing departments will be able to bolster email lists and deliver more relevant offers for future campaigns.
4. Build Loyalty
Offering rebates can increase customer loyalty. According to Access Development, 62 percent of loyal consumers take advantage of rebates from their favorite stores. This is compared to non-loyal customers, of which only 44 percent take advantage of rebates.
Rebates encourage loyal customers to come back for more. To measure the effectiveness of rebates in customer loyalty, utilize customer surveys to gauge how many recurring customers continue to redeem their rebates.
Rebate Management Solutions
Rebate programs are two-way communication opportunities for brands to achieve a variety of goals. Whether a company wants to sell more units or learn more about its customers, rebates have the power and versatility to handle the job.
Are you looking to streamline or implement a Rebate Program? Learn more about your options on our Rebate Management Solutions page or contact us!
Increase Profits While Building Your Customer Base
Rebate programs are a great promotional strategy to increase a company's profits. There are also many other benefits, like enticing new audiences and building a loyal customer base.
The incentives encourage higher volume and higher value purchases, without risking the integrity of a product price. Rebate programs are beneficial for all parties involved, when it is done effectively.
Group O offers full service rebate management solutions. For more information on how Group O can help your company, visit our website or call 866-476-8761.