Anyone who’s shopped a store over the past few months has seen the brunt of inflation’s downstream effect on the shelves. But beyond consumer spending, inflation with combined material shortages and an accompanying supply-chain crisis are having an impact on the B2B2C and B2B2B market. This warrants strategy adjustments to how you’re running incentives in the channel.
According to the U.S. Bureau of Labor Statistics, in April, “Consumer Price Index for All Urban Consumers rose 0.3 percent, seasonally adjusted after rising 1.2% in March…and rose 8.3 percent over the last 12 months, not seasonally adjusted.”
Building Materials manufacturers, Auto Aftermarket, Automation, and other industrial sectors may be finding that shortages and inflation are reducing their inventory, hampering distribution, driving up costs, shrinking margins, and subsequently effecting their channel sales strategies. Construction material costs spiked an average of 17.5 percent year-over-year from 2020 to 2021, in what the US Census Bureau referred to as the largest year-over-year increase in material costs since 1970. Auto aftermarket parts have seen 5% to 7% inflation and some expect to see another 1% to 2% this year.
Rising prices and low supply effects frequently trickle down to channel programs, demanding strategic adjustments be made to program design in order to ride the tides of the changing atmosphere.
Here are some common incentive and rebate program challenges faced during inflation and supply-chain challenges, and some creative inspiration on how to contend with them.
Supply Chain Challenge:
OEMs may lack product to sell, let alone incentivize
Lean into Training Incentives
Drastic times call for creative measures. Some manufacturers may find transient periods of sales gridlock, with distribution setbacks preventing product availability. While getting inventory out to the market may be priority number one, some OEMs take measures to keep their channel engaged in the interim through training and education.
Formal channel training programs by OEMs empower channel partners with useful documentation, videos, and other useful materials. A sharper reseller is always a better reseller. Choose to fill sales activity gaps with education and learn-and-earn campaigns that instill more product, brand, and industry knowledge into your valuable partners.
JELD-WEN, a leading window and door manufacturer, chose to lean into Training incentives during COVID-19 lockdown. With dealers and contractors stuck at home, JELD-WEN University kept them busy, engaged, and provided incentive opportunity to complete key training courses, under what became an award-winning program.
Other OEMs are leaning channel sales focus into non-product, intangible value-adds like warranties.
Rising-priced products can lead to feelings of over-SPIFFing
Adjust promotion logic to unit-based or tiered SPIFFs
A change in the climate and turn your historically successful incentive or rebate logic upside-down. A model that may have worked in traditional times may prove ineffective or even harmful as market tides change. For instance, percent-based rebates paid out on rising priced-goods could mean programs can theoretically pay higher SPIFFs for fewer products sold.
Formal online rewards programs should always enable program administrators to be able to flex, adjust, and pivot creatively to respond to changing market conditions. Simple tweaks to promotion logic — such as incorporating sales tiers, goal-based incentives, and bundle incentives — can make a huge difference in the performance and value in the program, without removing SPIFF-appeal among your channel.
Supply Chain Challenge:
Uneven inventory can lead to uneven selling
Product-targeted SPIFF/Rebate campaigns
Sometimes supply-chain issues and product shortages could lead to an equal dearth of inventory across the board. More often, there’s an uneven abundance of inventory. For example, chip shortages could lead to anemic inventory of computers, while accessories would be more unaffected. Incentive programs enable you to hone in on key value categories that hold the most margin potential as well as general availability.
A good program should enable OEMs to create micro-campaigns to targeted audience within the overall program population. Simple limited-timeframe SPIFF and rebate campaigns can help companies take more control over inventory sell-through based upon the current state of inventory.
Lower margins earned per unit sold could mean a lower program budget
Target programs SPIFFs, Products, Audiences
Sometimes adjusting costs to inflation can take time. Other times, it could seem impossible. Rough markets could effect overall margins of your business, which tends to travel downstream to incentives. Less margin means less room to fit in a SPIFF or rebate for a product sold or purchased.
Adjustments could be made in incentive program design that fine-tune SPIFFs per product based on margin allowances. While more simple programs may reward an equal amount or percentage across product lines, this model falls out of favor once margins change unevenly, warranting a more complex program schema.
A good incentive program will provide you with a simple means to hyper-focus campaigns, as well as marry specific reward amounts to product lines or even individual skews. Optimize your budget by running more widespread SPIFFs on the product categories holding the strongest margins. Product A with razor-thinning margins could dial back in incentives and overall presence in the program, while Product B with unaffected margins could keep attractive incentives in place and broadcast to a wide audience in a concerted incentive campaign. The result: more sales for the higher margin merchandise and more dollars earned!
Supply Chain Challenge:
Challenges in predicting deal flow in the channel
Program reporting and analytics
Uncertain inventory creates uncertain sales results. It’s not unusually that product sales that would typically be predictable and consistent across the country have become distorted and unpredictable.
A good, centralized channel incentive program breaks down reports by regions, distributors, product lines, and other key categories that enable you to see specifically how product sales are trending within key silos. Areas that need extra attention can result in a new SPIFF or communication strategy, while areas that are less effected can stay status quo.
General lack of sales of more elastic goods
Increase program channel communication and content
When the market is cold, it’s high time to generate heat in the channel. Goods that might seem like a luxury could have higher demand if the customer only knew the key values of your products. Your end customer might not be in the market for a $2,000 water filtration system, but a sharp contractor can better overcome objections with knowledge and data, and perhaps be armed to empathetically explain to the customer the long-term health benefits of that reverse-osmosis system.
Times of lower demand are opportune to leverage your program as a channel marketing and communication medium. Reach your channel partners with key materials, differentiators, product or sales training, and any other material that might help your ambassadors drum up higher interest and demand. With simple ability to tweak campaigns and promotions, you’ve even got the power to temporarily sweeten incentive earning potential to help fight through the slump.
WorkStride is a leading provider of reward programs for enterprise companies. Our technology, services, and support help top manufacturers to optimize how they reach, engage, and reward their channel partners to achieve peak channel sales performance in all market conditions. Contact us to learn more.
Edits made to include updated CPI numbers.