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Rebates: The ‘gift’ that has gone too far

Are retailers focused on selling the best product to meet a grower’s needs, or the product that will maximize their own business returns?

What farmers want are loyalty programs that are based on product quality and service, not complex, unfair rebates.

For years farmers have questioned and complained about the rebate and reward programs offered on agricultural inputs. Most complaints focus on the complexity of the programs and the inability for farmers to calculate the value of the rebate when making pesticide purchase decisions.

Farmers need to know the after-rebate cost of pesticides if they are to make prudent pesticide choices.

Major manufacturers have responded by posting online rebate calculators. However, these calculators have introduced a host of additional questions that need answering. After spending a significant amount of time running various cropping and acreage scenarios through a number of manufacturer rebate calculators, I have a few questions.

When your crop protection reps promote the rebates as a selling feature of their portfolios, you might want to ask these questions too.

Many rebate programs are now based on percentage calculations. Provided you make the required qualifying purchase(s) you will be rewarded a fixed percentage of your purchase price.

This seems simple enough. However, you would expect that if you double the acres of products purchased, you would get double the rebate. But I found that is not necessarily the case. It may pay to run multiple scenarios if you are seeking to maximize the rebate as a percentage of your pesticide spending. If you find a difference, as I did, ask your rep for an explanation.

Other manufacturers use a tier system whereby a higher dollar of spending earns a higher percentage return. For example, one manufacturer offers a six per cent rebate on a $25,000 purchase of their in-crop herbicide products, while a $75,000 purchase of the same products earns the grower a 15 per cent rebate.

Are larger farmers getting an unfair advantage on herbicide pricing? For simplicity, let’s assume that herbicide costs per acre are $25 per acre for two farms. Farm A is a 1,000-acre farm resulting in a herbicide bill of $25,000 and therefore Farm A gets a rebate of $1,500 (i.e. six per cent of $25,000) After the rebate, the actual cost per acre of herbicides is $23.50.

However, Farm B is 3,000 acres and therefore its herbicide purchases are $75,000. But because Farm B falls in a higher rebate tier (15 per cent), its rebate is $11,250, and Farm B’s after-rebate herbicide costs are $21.25.

This saves Farm B $2.25 an acre more than the 1,000-acre farm even though both farms are applying qualifying herbicides to all their acres.

Smaller farm operations should be asking why this price discrimination is allowed to continue.

Some manufacturers are offering rebates in excess of 20 per cent on pesticide purchases for the upcoming crop year if the farmer uses multiple company products on a large acreage. As a result, the medium and large farms can earn rebates worth tens of thousands of dollars. But these predetermined rewards are not a win or freebie from the pesticide company. Rather, they represent interest-free loans from the farmer to a global corporation.

Why do companies think farmers are happy to overpay for their pesticides at time of purchase so they can get a refund months later?

Your best choice?

More importantly, are the pesticides that you must purchase to maximize your rebate the best products agronomically for your pest problems?

Are you overlooking herbicides from other manufacturers which may be better suited for your weed spectrum because if you buy from another company or from multiple manufacturers, this will diminish your rebate?

Worse yet, are you using a product (a fungicide for example) that is really not needed but the purchase is made simply to maximize your rebate?

Could you actually save more money by buying a different manufacturer’s product than you plan to earn back in rebates?

Complicating the pesticide pricing/rebate issue is the fact rebates are not only paid to farmers but to distributors and retailers as well. So not only do rebates vary between farmers, but the upfront cash price a farmer pays may vary between retailers as they compete for market share. The line we sometimes hear is that retailers use rebates to reduce prices on products which are popular in their area to maintain market share.

Since retail rebates are often based on sales volumes of targeted products, however, are retailers focused on selling the best product to meet a grower’s needs, or the product that will maximize their own business returns? What role do rebates to retailers have in determining what product a producer carries out the door?

How can they afford it?

Finally, most farms operate on high costs and low margins, so when they see an offer of a 15 per cent, 18 per cent and even 20+ per cent rebate, it prompts them to question just how much money the pesticide manufacturers must be making if they can offer their best customers such big discounts on their pesticide purchases.

Are rebates the best way to boost sales, increase profits and build customer loyalty?

Successful businesses have always acknowledged their best customers. It is a fact of life in a free market, capitalist system. Depending on customer spending, companies would show thanks by providing their customers with items of appreciation ranging from gift baskets to articles of clothing or tickets to local events, or even trips. The best customers of any business are always rewarded with personalized, better service!

The strategic thinking behind such generosity has always been to build brand loyalty and increase sales, and these kinds of tokens of appreciation towards customers have been very successful with retail consumers and farmers alike.

Loyalty is, after all, an important goal. The study “Assessing Agricultural Input Brand Loyalty Among US Mid-Size and Commercial Producers” by Harper, Martin, and Akridge found: “Brand loyalty should prove important to agricultural input firms… because loyalty has been found to be a determinant of, or at least correlated with, farm purchase decisions.”

But there’s a big “but.”

“In addition,” the researchers found, “strategies for loyalty should focus less on price and more on the value that can be obtained through product quality, service and providing relevant information.”

In 2019, KPMG International surveyed 18,520 consumers in more than 20 countries about customer loyalty. In “The Truth About Customer Loyalty Survey” 74 per cent of consumers said product quality inspired loyalty, 66 per cent value for money and 56 per cent customer service. (It is important to note value for money is not the same as price.)

KPMG found: “Six out of 10 consumers say they are loyal because they feel a personal connection to a company.”

Other important findings in this survey were:

“The reinvention of customer loyalty is a work in progress, but brands and retailers should remember that three out of four of your customers say they will buy elsewhere if they get a better offer.”

“Half of consumers strongly agree that companies should find new ways to reward loyal customers. This is not necessarily as simple as offering greater rewards.”

“Brands and retailers that stick to the tried and trusted may experience the Law of Diminishing Marginal Utility, where the more people get of something, the less valuable it becomes.”

The pesticide market is changing. Online sales, a move away from MSRPs, and the end of geographic sales territories have all contributed to a much more competitive marketplace. New players like FBN are exposing wide variations in prices for the same product across geographical areas.

Companies have responded by increasing rebates and rewards because they think this will create loyalty. But in fact, it has simply created a new pricing structure which rewards some customers, alienates others and cuts profits for the pesticide industry.

What farmers really want is value for their pesticide dollar. That means much more than price. They want great products at a fair price. They want product warranty and performance guarantees. They want personal service where everyone has access to information about the product.

Most importantly, farmers want a relationship with company personnel who can assist and answer questions.

These actions are what drive loyalty, not price.

So, it is time to ask: Have the pesticide manufacturers gone too far by marketing through reward and rebate programs instead of service?

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