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 normalize international best practices. Locally, retailers have adopted many approaches, with pricing being a key strategy.
From closure of local retail giants, entry of international stores, aggressive physical expansion and increased e-commerce activities, businesses have had to adopt globally recognized 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 to 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 to the1800s 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 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 timeframe or promoting a particular product. Ultimately, this will boost sales and foster stronger partnerships between retailer and supplier.
According to the ‘Rebate Optimization in Retail: Driving Customer Responsiveness’ report conducted by the independent research firm Aberdeen Group, 50% of retailers and 48% of manufacturers utilize rebate programs to enhance customer loyalty and promotional efforts. Furthermore, with the customers looking for great deals due to the rising cost of living, rebates serve as a means for retailers to provide cashbacks, 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, 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 customised 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 behaviors and expectations, increased competition, and fluctuating market conditions. If implemented well, rebates have a potential to build stronger supply chains and propel modern retail transformation in the country.
It is critical for local retailers to 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 Kenya Association of Manufacturers and the Association of Kenya Suppliers, in putting together the Prompt Payment Code of Practice, in the journey towards formalizing and professionalizing 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, CEO, Retail Trade Association of Kenya (RETRAK)