Opinion: What is the future of “Rebate” programs for HVACR Distributors and Manufacturers?

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Rebates, Backsides, End Customer Cash Back Programs, etc. whatever you call them are going to be growing in importance every year for the Channel.

As I was preparing to head up to Boston this week to speak at the Enable Catalyze Conference, I was reviewing the current state of rebates in the channel.

For reference – Enable is partnered with Affiliated Distributors and Net Plus Alliance (public information) and many North American Distributors. Catalyze is billed as the world’s only rebate management conference and has over 300 channel leaders attending their conference this week.

I was reviewing how far distributor program incentives have advanced in the last twenty to thirty years, and doing some desk research to see if I could find some refresher articles to review to add some color to my presentation.

What I found were three key items to share-

1. Rebate and B2B incentive programs between the Manufacturer and Supplier in B2B Distribution keep growing in importance and complexity.
I found a few articles about growth from university sources, but very little specific academic research with data outside of what the B2B channel and associations already know and report on Rebates. For example- HARDI PAR reports and information and Buying Groups probably do an excellent job of providing that data to your team in the channel.

The fact is Rebate programs today are vitally important to Channel Profitability especially for the distributor. HVACR distribution has its own nuances compared to Electrical and Industrial MRO and HVACR also has more end user rebate programs. It is very clear that  the “backside” incentives from Manufacturers are crucial to the HVACR channel.

Manufacturer rebate and incentive programs deliver between 10% and 90% of total net profit dollars to distributors. This varies widely in HVACR and is affected by current market conditions. I can say from my direct experience working for many of North Americas largest distributors in a Category Management role, that the percentage varies year to year, but in every case those “backside” dollars are crucial to every distributor.

2. Do rebates really deliver the returns manufacturers expect?
I believe they drive more than just loyalty and partnership for manufacturers. They are not just a “gift” or “tax” on the business. They drive growth. Rebates also keep market level pricing higher with end user customers. Most manufacturers would tell you that when they give a 2% first cost reduction to a distributor they find it becomes a pass thru 2% discount in sell price in the market to win orders.

With rebates, whatever level you are at with your HVACR distributors less of that “rebate discount” is passed through to the end customer and keep end customer market level pricing higher. That is a win for everyone in the channel.

3. Are incentive and rebate programs Growing or Declining?
As we all know what happens in retail and consumer marketing usually ends up being copied in some way in the B2B Distribution Channel. Incentive & Rebate Programs are Growing.

In the mid 1900’s grocery stores started the revolution with “slotting fees” and “rewards programs”  for consumers (e.g. S&H green stamps). Today there are more loyalty/incentive programs before than ever. Every grocery store, restaurant, pizza joint, major retailer, and consumer business seems to have one.

I mean just go through drive thru at McDonalds now, and see how people are holding up the line to make sure they while in the Drive Thru do an “app order” to earn rewards and rebates.

For B2B HVACR Distributors  Rebate and Incentive programs are the present and the future. Rebate, Incentives, Backsides whatever you call them are growing in importance with no sign of relenting.

HVACR much like Construction Supplies also has a growing number of Rebate/Cash Reward type programs for end customers. Home Depot Pro Rewards and Lowes have established programs for service contractors that are important to follow.

Of the current distributor end customer rewards programs out there, I would recommend you might follow White Cap Construction Supply Cash Rewards program. As a former White Cap leader, I am obviously biased concerning their program.

I would note that little is publicly reported for many of the End Customer reward programs that is available to report on. It is clear that these programs continue to grow and have been in place for many years.

In My Opinion, if these “rebate/reward programs” did not return the expected results, it is highly likely that they would be discontinued many years ago by these large companies.

What are your opinions on the future of “Rebates and Reward Programs” for B2B Distribution?

As always we appreciate your feedback, please feel free to reach me at john.gunderson@dorngroup.com

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