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The Back-End Rebate: The Ideal Customer Retention Plan That ProvidesKeeping customers is an extremely important aspect of business growth. According to some estimates, it can cost four or fives times more to attract new customers, when compared to keeping existing ones. While this statement is rather ambiguous, it’s not impossible to figure out the cost of a lost customer. You might just take their monthly orders, and immediately draw a conclusion of the value of that account. For instance, if your customer spent $200.00 per month, and you lost them as a client, you would lose a customer whose value was $2,400.00 a year. Is there a way to not only keep customers, but also encourage them to provide you with key market and competitive information? The answer is yes. The way to accomplish this is through the use of the back-end rebate program. The one area you can’t control is your competition pursuing your business. There is a way to make your customer respect your position as the incumbent supplier. It’s obvious that business growth is attained by growing and keeping business at existing accounts. However, the one area that is nearly impossible to control are competitive bids. There is always someone, somewhere pursuing your business. It is inevitable that your current customers will be pursued by a competitor of yours. They will do everything in their power to underbid, or compromise your current position. Wouldn’t it be ideal if your customers had to get back to you with market and competitive information? What if your customers were compelled, and indeed forced, to provide you with competitive information? How could you possibly ensure that your customers had little to no choice but to provide you with market and competitive feedback? There is a way to accomplish this with the back-end rebate program. In fact, not only will it provide you with important competitive information, but it will also encourage them to continue to come back to your company for future business. The back-end rebate program provides incentive(s) for your customer to not only continue purchasing from you, but also to provide you with important market information. The program allows you to control the information your customer provides. When implementing this program, make sure to explain to your customer that your company wants to grow along with them. When you explain that your company is not simply interested in day to day transactional sales, but in actually growing with them, they will come to appreciate the approach. If you are successful in implementing this program, it will allow your company to enjoy the right of last refusal on the business you have with your customers. Consider the following example.
What does the table above demonstrate? To understand the table, first consider that you have entered into an agreement with a customer to provide them with product throughout the year. You provide a back-end rebate of $0.50 per unit provided they purchase a guaranteed volume every month. For every order of 24 units, they get a rebate of $12.00 which will be applied as a credit on their account at the end of the year. They only get the credit provided they meet all their obligations. Since business is often cyclical, make sure that the volume they need to reach is reasonable, but not too easy to attain. You want your customer to have a reason to reach the rebate and volume credit. Making it either too difficult or too easy, will surely fail. For the example above, assume your customer might have two months where business is slow. Therefore, the volume the customer would need to attain to receive the rebate would be any amount above and beyond 240 units, or ten months of orders. What happened in May and October? May and October are the months where your customer was approached by a competitor of yours, and was offered lower pricing. At that time, your customer had a choice between pursuing the offer, thereby moving business away from your company and losing out on their back-end rebate, or calling you to discuss the competitive bid. Most of the time, customers will simply purchase elsewhere without letting you know you’ve lost their business. You end up feeling a sense of anger and frustration. In that case, your customer had no reason to tell you they decided to go somewhere else. However, in this case, your customer is not only thinking about the competitive offer, but also about the amount they have accrued in their rebate program. The customer’s first thought is not only to get the new pricing, but also to keep the rebate. The only way that can happen is if they call you to discuss the competitive offer.
The program provides you with the ability to both protect your pricing and your gross profit. You are in complete control. If you feel the competitive offer is not worth pursuing, you can simply choose not to match the bid. If you decide not to match the offer, you keep the rebate amount, protect your pricing and keep the higher gross profit on the sales from January to April.
Do you want to know what your competitor is doing in the market? The best way to get that information is from your customer. Asking for it can be uncomfortable. However, if the customer had to tell you because they had something to lose, well, that would be different. In this case, your customer most likely will get back on the phone with you to see if you can match the pricing. This approach provides real time pricing and market information that is extremely valuable to your business.
Make sure to use the pricing information from your customer properly. Don’t just immediately match the offer without doing the math. Take the time to analyze the offer and its impact on the rebate program. Let’s assume that in May the competitive offer was for a price of $23.80. In response, you answered with a new offer of $24.15 per unit. If your customer were to simply switch, not only would they forego their accrued rebate from January to April, but the difference of $0.35 would only amount to a $67.00 reduction for the remainder of the year. However, they would miss out on the $144.00 of the entire rebate. If they switched to the new vendor, they would actually be losing $77.00. It simply would not make any sense for them to take the offer from your competition. The best part of the program is that once your customer builds up some value in their rebate program, it becomes difficult for them to switch without first providing you with a chance to match the competitive offer. Use the information properly, and do your due diligence before answering the competitive bid. Developing an incentive based program that encourages your customer to be an active participant in providing real time competitive information, is the best way to stay ahead of your competition. The benefits of the rebate program allow you to grow with your customer. It allows you to maintain control over both your pricing and your gross profit. Use the information wisely. To learn more about GottaLotta Marketing and how we can help you meet your marketing objectives, contact us today. 
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