Episode 37

Published on:

26th Sep 2022

Maximizing Manufacturing Revenues with Rebates with Mark Gilham

Lisa Ryan: Hey, it's Lisa Ryan. Welcome to the Manufacturer's Network Podcast. Our guest today is Mark Gilham. Mark is a rebate expert, director, and evangelist at Enable, a SAS solution for B2B rebate management used by manufacturers, distributors, and wholesalers across 50 states. Mark started his career at a major financial institution and progressed to senior finance roles in the construction industry, where he witnessed firsthand the strategic value of rebates. Mark, welcome to the show.

Mark Gilham: Hi, Lisa. Thank you for having me on.

Lisa Ryan: Please share a little about your background and what led you to be an evangelist for rebates.

Mark Gilham: Sure. It's quite a job title. I started nearly a decade ago after moving out to the financial industry. And I went into the construction industry, where I went to an organization with hundreds of millions of pounds of rebates.

And what they realized was they needed financial controls. So, for example, a bank would have to manage all this money because this rebate was multiple their profit. So I was brought in and worked with them for many years optimizing the administration side. And as we optimized that, we moved into how to enhance the management and laterally into how we add strategic value with our rebates and look at how they're used commercially. 

And yeah, it's been, as I said, a big journey, and then more recently, I transitioned over to Enable. as you mentioned, they provide software that manages rebates. We were inclined to use Enable throughout this whole time. And what's been great is that they're coming over to help the industry rather than just the company I was working for. So for me, it's not about the software. This is more about how we strategically use rebates to add commercial value.

Lisa Ryan: And when you're talking about rebates, I know in the past they have had a bad reputation where people have used them to either mask pricing or come up with these complicated schemes that made it almost impossible for you to get your money back. What's changed? And how is it benefiting manufacturers?

Mark Gilham: One of the biggest challenges I see now is this reputation in the past about rebates. When I started at Grafton, you could see that they were not used for mutual growth. There were a lot of schemes there that were benefiting one side more than the other.

And there were almost seen as a necessary evil in business relationships. And what's changed is that companies have become more digitally aware and mature. So I think that the whole business relationship has changed. In the old days, I believe businesses were not as collaborative as they are today and didn't recognize back then the importance of working together for mutual benefits because of that shift. 

That's how trading deals are structured to benefit everybody. And rebates are part of that shift. By making them more transparent and bringing them out into the open, everybody can see their influence on a business starting to take them into place. I want them to be a strategic tool, but for mutual benefit.

Lisa Ryan: Can you give examples of what a manufacturer would use a rebate for? How do they work?

Mark Gilham: There are many use-case scenarios, but if we go to a simplistic scenario, let's say you manufacture two product ranges. 

You've got one product range, which is your staple product which you sell high volumes of. But that's not where your margin is. That's not your highest margin range. Then you have a second range in which the lower volume, the higher margin you could offer your customer.

A rebate that says, if you buy in this particular ratio of the two ranges from us, 25% of your sales are in that, in the higher margin range, I will provide you with a rebate across whether it be just that range or all your buying. So you're trying to subtly have the customer buy both ranges from you and not just press on the low margin where you, as a manufacturer, are working hard but without the return you want. And that's one scenario, another where say, the margin isn't as important. It could just be a simplistic growth incentive.

For example, our customers spend for last year, add a certain percent to it or do it on, on, on a volume basis and incentivize them for growth. And you can tier that as well, that as their growth keeps going, they keep getting more rebates. And the beauty of both schemes is that it is also building loyalty.

There's a secondary benefit. These are typically annual terms, meaning the customer will spend with you all year. And then, at the end of the year, you will give them cash, but my advice would always be to pay credit notes. So you put a credit on their account for this rebate, which they then got to spend with you again through the credit.

There are quite a few benefits. First, your customer is getting what they want, which is always crucial. You're already giving them excellent service, but this is now giving them control over their pricing. And you are getting what you want. You are either influencing your mix or your volumes and incentivizing loyalty.

Lisa Ryan: Yeah, that certainly sounds like you're developing relationships because everybody likes to get a nice check or a nice rebate at the end of a year. I know we have Costco in the United States here, and we look forward to that rebate check we get every year. But I liked what you said too, about the opportunity to sell a wider variety of products to get more of your product line. Because often, customers may not even know that you carry that one product because they've been buying the other thing for you for a long time. That gives you additional opportunity to penetrate that customer with more and more products and, as you say, builds some nice loyalty there.

Mark Gilham: I think people don't realize how rebates are part of our everyday life, whether it's I see point schemes as a form of a rebate, anything where you are incentivized to do something, and then you receive something retrospectively as a reward for me is a form of a rebate type arrangement.

And all the big retailers have been using them for decades. And clearly, they're doing. They're achieving something for themselves. And yeah, there is something, as you say, about seeing how you are performing and stretching yourself to that net next tier. And if I put the boots on the other foot here as a distributor as the.

We would sit through multiple meetings in the latter part of the year and look at all our trading relationships with our manufacturers and say, where have we got an opportunity to spend a load of money and earn more rebate? And the manufacturers aren't even their salespeople aren't even having to come into our office.

We're proactively discussing how we can spend more money without a manufacturer. And to add to that, we're then bringing in our sales teams and saying we're about to spend twice as much with this manufacturer as we usually would because it will make us this tremendous sum.

We're going to take half about six big of sum, and we're going to throw that into a sales promotion. So how do we all work together? And then we knock on the manufacturer's door and say, Hey, good news. We're about to spend a load of money with you. And that, for me, is what these things are about. And like you say, we are just looking forward to that reward.

Lisa Ryan: Now, how would you start the conversation? Because, as I said, we're from a consumer standpoint, I understand rebates because for Discover Card, that's how they built their whole reputation with 2% cash back. But how do you structure the conversation when you're in a business relationship with people so you're promoting the benefit and it doesn't sound icky, or it doesn't sound like a bribe? Ooh, if you buy this, I'm going to give you this. How would you get into that conversation? that you're going, that win, win that you've been talking about?

Mark Gilham: Sure. I think what's important is understanding what your client wants. Then, in going into that conversation, what you want. And I believe in most business or negotiations; there is a negotiation. And for me, that's where rebates play well. I'd be surprised if they don't always knock on your door and ask for a lower price. You can offer them that lower price using a rebate.

You can say we can't just give something out, nothing, but if you do X, Y, and Z, we can get you to that price. So for me, they're an alternative to saying no, they the other thing as well is I think in the modern world of transparency, it's essential to be open and genuine with your customer.

More recently, it was packaging material. This company was developing an Ecoline that's good for the environment. And they came and knocked on it and said, we'd like you to buy or this Ecoline, but surprise price is higher. And we're sat there going; you know what, we want to be green. We want these, our eco credentials. But we don't want to damage our profitability in the process. How can we do this? And that's where that ratio element came in. They said okay, let's start slowly. But they didn't want to discount the range because what if they'd have discounted their eco range to make it credible or competitive?

Should I say it's challenging to recover from that you've created a pricing point or a price perception in your product's market? Whereas the net price is subtly arranged behind the scenes. It is about understanding what each side wants and working toward that narrative.

Lisa Ryan: And it also sounds like it brings in the element of fairness because you can justify why I heard this person got this pricing. It's no. We're getting the same. You're getting the same price, but because of the quantity they're buying and the rebate they're receiving, they're doing it.

It gives you that justification instead. Somebody thought they got a higher price because they didn't negotiate as well as the other company. Would that play a part in it? Am I reading that right?

Mark Gilham: Yeah. And I think this is where you can empower your clients to be in charge of their own pricing.

We've encountered scenarios before where one of the most where you get the most friction in a negotiation is right at the start. When you talk about the price because as much as the client can promise volume, you never know if it's genuinely going to be achieved, and the seller does not want to give the discount because they haven't got the volume yet.

And the buyer doesn't want to buy anything because they haven't got the price they want yet. Whereas you, with a rebate, can take it away. You can tell them that you promise me if you deliver the volume. You will get this price, which is the price. Hopefully, you are asking for it. If you do even more volume, it gets cheaper.

If you do less volume, it gets more expensive. What it does is it allows related pricing in volume. Driven relationships to be dynamic without having to have awkward and challenging conversations. 

Lisa Ryan: And especially at the beginning of a relationship when the two have not built trust yet. Both are trying to think that the other is trying to take advantage of them, where you had mentioned earlier about that level of transparency and putting it out there and making it easy for them to understand that they can see how this is more of a win.

Mark Gilham: Yeah. And it comes back to that word again, that transparency.

It is critical in modern supply chains that both sides work together and collaborate for mutual benefits.

Lisa Ryan: have you seen other ways these B2B rebates improve margins and drive revenue from manufacturers? Yes.

Mark Gilham: If we look to another real-world scenario at Enable, we had a case where a business didn't have any rebates.

And yet they came to a rebate management software provider and said, Hey guys, we don't have rebates, but we're thinking about having some, but we're not quite sure how they can benefit our business, but somebody has told us rebates will help. So I was brought in, and they explained the scenario.

The scenario for them as they had two different types of customers, and those customers were competing with each other and driving the value of their product down because one customer bought in bulk and had a lower price. And the other customer bought in single units at a higher price. They had different prices.

The one who bought in bought did have a lower net price. And the suggestion there was you, what you could do is you could increase the invoice price of the one who buys in bulk and give them that back as a rebate. So on the face of it, both sides are paying the same amount. Because in many B2B worlds, many people in charge of pricing tend to be cost-plus.

If you affect that cost without restricting it to trading, you can stop that kind of that competition. Hopefully, any manufacturer agrees that the more money your customer can make from their product, the better it is to be you because the less likely they will come knocking on the door, wanting it cheaper.

Your customers getting into pricing competitions is the last thing you do. So that was a real example of rebates used in a scenario where it was just leveling the playing field at the front end but rewarding at the back end. And I suppose; secondly, another good one is new product ranges.

If you've got a new product range, again, you can go with the discounting option and push it out at a lower price. But the danger is that the market never then recovers from that initial price point, or what you can do is incentivize using rebates to try. What you can do with the rebate is it doesn't just have to reward what you bought in that range.

It could reward all the customers spend. Again, looking at that 25% ratio, you can tell your customer that if you buy X of this, I'll give you an extra 2% back on everything. You can make it quite appealing. I think the key always is to do the math and make sure you're happy with it, but the good thing amount of rebate is that you know what you're going to pay out because if you've done all the maths, they should always be rewarding.

And yeah, self-funding scheme. And they can be undone. Whereas a discount is harder to undo once somebody's paid the price, rebates the following year, you can renegotiate the rebate structure and say it was 25%. For example, we now want it to be 30% in this ratio.

Lisa Ryan: And again, it goes back to that loyalty because if somebody knows that they have a significant rebate coming from you from the business they've done with you. They continue to be happy with the product, service, and everything else they're getting; the chance of them going elsewhere seems to decrease.

Yeah. It makes you very sticky as and I think, being completely honest, there were manufacturers in my last role at Grafton that we probably would've moved away from. But, still, we couldn't because we were in this kind of rebate circle where rebates were that rewarding tool, so when we had paid them out, we had to keep spending to spend them through.

At that point, we'd already earned another round of rebates that we didn't want to forfeit. So it creates a stickiness, but it's a positive stickiness. It is rather than a threat. It's a reward, if that makes sense.

Lisa Ryan: if somebody was intrigued by the idea of rebates but has no idea how to get started or what types of products would be suitable, to begin with? How does somebody even consider, with a wide range of products that they manufacture, how they could start offering rebates or getting involved in a rebate program?

Mark Gilham: I think that there are two sides to that. I think the first is I would always recommend keeping it simple to start with and do not offer if you've never worked with VH before, don't offer them to every customer, like a couple of customers, some simple agreements.

And monitor, understand what you're expecting, and you can monitor if the customer's mix is currently at 23% and you've incentivized them to go to 25, you can monitor that. You can see if it's working. Is the reward big enough for what you're trying to incentivize? So that, that's my kind of, one of my biggest caveats.

Because I accept as much as the company I work for offers rebate software doesn't mean everybody will go out and buy rebate software. Don't. Start small. And you probably won't get it right the first time. So, start small and keep learning from it. Understand what incentive, how much incentive is required to drive behavior and what type of incentive.

And then secondly is the important transparency piece. Suppose you are trying to reward somebody's behavior over a while. In that case, they need to see how they're tracking because otherwise, if you are, I think if you look at any high-performing activity in the world, it's essential to know where you're at to push your performance further.

They're the kind of the basic tips, but then secondly, I think, Enable as an example for us, we're not just about the software. We're trying to build a community where people can use rebates correctly. My role was the evangelist. This is what I'm evangelizing.

I'm trying to move beyond. The concept of these rebates is creating friction and using rebates the right way. I'm happy to help people and learn how to use rebates correctly. I'll, for example, be doing a few webinars on that type of thing, but I'm always happy to speak to people one-to-one. And you explain to them how we may benefit them.

Lisa Ryan: would you maybe take a look at a pilot program? You said there'd be a couple of customers, perhaps they pick a couple of great customers that have a relationship with, and they say, listen, we're putting together a, we're experimenting with a rebate program, and we'd like you to be part of the pilot.

Would that be something else they could do, or does that not?

Mark Gilham: Yeah. I think that's a good piece of advice. A couple of customers you trust and ask them, get, and gain their feedback throughout the process. And because again, it comes back to that, to me, transparency and collaborative or not selective, you're either collaborating, or you're not, you're either transparent, or you're not, you can't pick and choose when you're going to be those things.

And for me picking a client you can work with and working to those fundamental principles throughout is good advice. And yeah, you will learn much because, coming back to the first point, this incentivizes a behavior. So, you've got to make sure you can measure two things there: the incentive's size and the behavior you're trying to dry. So, the behavior is what you are getting back, and the incentive is what your customer is getting back. So, you need to ensure that the behavior reward is greater than the incentive you're paying.

And hopefully, the two are very easily trackable. And both from your side and your client's side.

Lisa Ryan: Okay. Awesome. As we get to the end of our time together, if somebody did want to continue the conversation with you, what's the best way for them to do...

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About your host

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Lisa Ryan

As a Certified Speaking Professional (CSP), an award-winning speaker and author of ten books, Lisa Ryan, CSP, works with her clients to develop employee and client engagement initiatives and strategies that keep their top talent and best clients from becoming someone else’s.
Lisa’s expertise includes: strengthening workplace culture, improving employee engagement, increasing customer retention, and initiating gratitude strategies (“Grategies”) for personal and professional benefit. Lisa’s participants enjoy her high energy, enthusiastic delivery and quick wit and they leave the session with ideas they are committed to acting on immediately to make positive workplace culture changes.
Lisa costars in two films with other experts including Jack Canfield of “Chicken Soup for the Soul.” She is the Past-President of the National Speakers Association, Ohio Chapter and holds an MBA from Cleveland State University.

Relevant Experience

• Keynote, breakout or workshop speaker at more than 100 national and international conferences
• Thirteen years of industrial marketing and sales experience, including seven years in the welding industry – and yes, she does weld
• Host of “Elevate Your Engagement Levels: What You Need to Know” on the Elite Expert Network and the C-Suite Network
• Creator of “The Seven Mistakes Managers Make to Crush Company Culture” video series
• Best-selling author of ten books, including “Manufacturing Engagement: 98 Proven Strategies to Attract and Retain Your Industry’s Top Talent”
• Award-winning speaker