Rebate pricing can build a strong retail supply chain

Opinion

In the last few years, Kenya’s retail industry has been experiencing continuous transformation, prompting the need to relook the way we operate, adopt new ways of doing business and normalise international best practices.

Locally, retailers have adopted many approaches, with pricing being a key strategy.

From the closure of local retail giants, entry of international stores, aggressive physical expansion and increased e-commerce activities, businesses have had to adopt globally recognised approaches to remain competitive.

Many local retailers have adopted pricing tactics such as rebates and other modes of discounts to remain competitive amidst market transformations. 

There has also been a reawakening of the fact that retail is about giving the consumer the best quality product at the best price and focusing on moving volumes and not margins.

The history of rebates dates back to the 1800s within oil marketing companies in the railroad industry. 

A rebate is a partial refund of the cost of an item. It acts as an incentive to help sell the product. In many markets, this benefit is passed on to the consumer, in the form of cheaper prices on the shelf. Over the years, the use and application of rebates has evolved. 

Today, rebates are viewed as a way of driving sales growth, safeguarding profit margins, and cultivating enduring, mutually beneficial relationships among suppliers, retailers, and customers.

Globally, the implementation of rebates in pricing strategies has played a critical role in the success of modern retail supply chains.

Often, suppliers will offer discounts or refunds to retailers based on predetermined criteria such as attaining a specific sales volume or target within a specified time frame or promoting a particular product. Ultimately, this will boost sales and foster stronger partnerships between retailers and suppliers. 

According to the ‘Rebate Optimisation in Retail: Driving Customer Responsiveness’ report conducted by the independent research firm Aberdeen Group, 50 per cent of retailers and 48 per cent of manufacturers utilise rebate programs to enhance customer loyalty and promotional efforts.

With customers looking for great deals due to the rising cost of living, rebates serve as a means for retailers to provide cashback, in the form of loyalty points or coupons.

Locally, rebates are offered by suppliers to supermarket chains to cover costs in areas like loyalty and promotional activities, category management, and new corporate social responsibility initiatives among others. 

The terms are typically established through contract negotiations, within a framework that guarantees mutually beneficial partnerships.

 This holds particularly true when customized rebate programs are implemented.

Kenya’s retail industry is at a critical juncture requiring balancing competitive pricing decisions with margin priorities, in the face of changing consumer behaviours and expectations, increased competition, and fluctuating market conditions. 

If implemented well, rebates have the potential to build stronger supply chains and propel modern retail transformation in the country.

Local retailers must adopt international best practices as they provide a benchmark for excellence and enhance their credibility and competitiveness in the global market. 

This was the journey the Retail Trade Association of Kenya embarked on together with the Kenya Association of Manufacturers and the Association of Kenya Suppliers, in putting together the Prompt Payment Code of Practice, in the journey towards formalising and professionalising the relationships between sector players. 

The successful adoption of this code will go a long way in enhancing self-regulation of the retail supply chain as it also lays out an arbitration mechanism.

Wambui Mbarire is the Chief Executive Officer of Retail Trade Association of Kenya

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