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Free Money or Lost Money – Rebates in the B2B World | PROS

B2C rebates work because the same buyer who makes the decision also receives the rebate, which is often not true in B2B. A purchasing agent is typically evaluated and compensated based on the discount she negotiates for any item. Rebates are typically not calculated into these discounts because they’re not certain. So rebates are nice for the receiving company, but they don’t incentivize the decision maker to decide in your favor.

However, when these two negative effects are accounted for, B2B rebates have a powerful purpose. They can hide your best prices from your distribution channel.

Here’s the problem: Distributors have so much information about your past pricing behavior that if you offer a discount to a strategic customer through a distributor, that distributor now knows how low you are willing to go. When the next semi-strategic customer comes along, the distributor will ask you for your best price, which they know because of past discounting behavior. What’s really frustrating though is that sometimes the distributor doesn’t even give that best price to the customer. They pocket the extra margin themselves.

Rebates can stop this. When you need to give a lower price to a strategic customer who’s buying through distribution, consider offering the customer a rebate. That way the distributor never sees the lower price, and the customer gets the benefit.

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Free Money or Lost Money – Rebates in the B2B World.