Best Practices for Rebate Optimization
At a recent summit attended by home improvement manufacturers, distributors, and contractors, the call from the top was for visibility. As is typical in industries with nonintegrated verticals, manufacturers and distributors in this industry fly blind when it comes to rebate optimization.
Adding complexity to the issue of rebate optimization is the fact that the nearer you get to the ultimate consumer, the less the brand of the product is emphasized. The discussion at this level focuses more on implementation and service agreements and other factors mostly associated with contractors than it does the actual brand. In a recent LinkedIn discussion, one contractor stated, "A good installation [is more important] than the brand."
Inc. Magazine recently reported that residential construction was one of the "hottest high-margin industries." The magazine forecasts an increase in spending of 63 percent, to $303 billion annually by 2017. After a seven-year drought in home maintenance and repair, the opportunity for top-line growth and market share gains can't be missed. But the benefits will only accrue to those manufacturers and distributors that can properly harvest consumer information, resulting in sales of their product. Rebate optimization provides the market intelligence required to speed new product introduction and increased revenue.
Aberdeen Group reports that 48 percent of manufacturers use rebates as a means to drive top-line revenue and build competitive advantage. From our company's discussions with home improvement suppliers, we can confirm that rebates are an integral part of their promotions mix.
The Aberdeen survey goes on to report that while rebates are a useful tool, the industry has shortcomings in its ability to execute rebate programs effectively.
In general, marketers cited the following issues as major hurdles:
- Lack of promotional effectiveness (32 percent)
- Competing business models between retailer and manufacturer (26 percent)
- Inability to measure and predict due to poor execution (21 percent)
- Inability to use relevant customer data (21 percent)
Let's look at some best practices that address these problems.
This problem deals with a lack of visibility that occurs within a nonintegrated demand chain. Manufacturers pass promotional funds to distributors, who then pass funds, meant to influence consumer purchases, to contractors. Information associated with reach and consumer acceptance is delayed or not gathered at all. Programs are extended or altered more in response to what competitors are doing than to how consumers are engaging with offers.
This issue is solved with a centralized database that captures consumer engagement from discovery to purchase. Currently, information is in too many hands and in too small a quantity to be useful to anyone.
Competing business models
It's assumed that a contractor and a manufacturer are aligned when engaging the customer. That's not true. While both want to capture a new customer, the contractor has a wide range of offers to serve the customer, while the manufacturer requires a specific product purchase.
The manufacturer/distributor needs to influence the consumer before the sales process. We know that 95 percent of email recipients want to be contacted with savings recommendations. Targeting communications to specific consumers can get the product information to them at the right time.
Manufacturers/distributors also need to think of combined offers that support different product and service agendas. Owens Corning has done a good job in creating insulation kits. These kits combine ceiling insulation with caulk and weather stripping. This offer allows for combined rebates, an increased service offering for the contractor, and product pull through for Owens Corning.
Offer combinations need to be coordinated with contractors and tested with homeowners. Data must be centralized and actionable.
Inability to measure and predict due to poor execution
This is where the finger pointing comes into play. Since we're dealing with a typically nonintegrated environment, we're very slow to understand where the ball is being dropped. We have to know if the offer is competitive, if the communication channel is providing reach, if the channel is easy to sell to and buy from, and if retail is responding effectively—or at all.
Further, manufacturers and distributors need to distinguish between retailers (in this case, contractors) that can provide volume and those that can provide growth. Oftentimes, the larger retailers are trying to improve operational effectiveness and profitability. Which retailers are focused on growth? Knowing this will impact how the supplier deploys promotional funds in support of revenue and product sales objectives.
Inability to use relevant customer data
Do you know who your customer is? For manufacturers and distributors, what insight do you have into the ultimate customer? This requires that you know your customer's customer. There are a number of examples where the manufacturer has recognized that it needs to represent its product directly to consumers and learn from the process.
In order to get smarter about their ultimate customer, Andersen Windows launched Replacement by Andersen retail stores. Andersen decided to split its markets by continuing to serve the pro market through building material distributors and residential homeowners through Andersen franchise stores. Andersen is able to gather important homeowner information that feeds both its channels.
VW has chosen to stay with its existing retail structure through independent dealers. Nonetheless, it has pursued an aggressive marketing and branding program in support of its products that sends buyers to dealers. It has segmented consumers and targeted those that are looking for an "environmentally friendly orientation." The result was a record 2011 during a global recession.
Rebates are an excellent tool for many manufacturers to establish why a consumer should care about their brand. The onus on manufacturers is to centralize data, learn about their ultimate customer, and relentlessly test offers and combinations to segmented audiences. The competition isn't sitting still. Those that can harness customer information effectively will win and those that can't will go away.
Tony Maull is the president and cofounder of SaveBigBread.com. He served as the U.S. Regional Greenhouse Gas Initiative practice leader as well as the Clean Tech Market Leader for Ernst and Young in the Mid-Atlantic region. Previously, he was director of marketing for Experian-Scorex.