When it comes to the importance of rebates, one might think that buyers and sellers would be on the same page. That's not the case in home building.
BIG BUILDER research shows a wide discrepancy in views between manufacturers and builders on the relative importance of rebates. Most manufacturers (51 percent) believe they are important, while only 30 percent of builders deem them so. Hence, there's confusion in negotiations between buyers and sellers.
The discrepancy starts with the essential definition of cost. If you define it as the lowest cost of ownership over time, it's clear that rebates are just one element of total cost of ownership; other elements include logistics, warranty, and repair. According to the BIG BUILDER research, builders viewed “lowest cost over time” as being important at a margin of more than double those placing importance on rebate (67 percent compared with 30 percent). Yet manufacturers believe that rebates (51 percent) are roughly as important as lowest cost over time (53 percent).
The takeaway here is that manufacturers appear to underestimate builders' sophistication in the purchasing process.
“Rebates are an element of price,” says Kyle Dempsey, president of Sivica Homes in Atlanta. “Our focus is to have the lowest cost for all of our purchases. It makes no difference to us if we have a rebate as long as the total price is the lowest in the market place. Manufacturers are the ones who want the rebate to keep net prices confidential.”
Dempsey's view is common. Almost 85 percent of building products are invoiced by the subcontractor or the local building materials dealer. If the product is not sold directly, the only way for a manufacturer to give a discount to a large builder is to use a rebate.
Sophisticated manufacturers use rebates as a market penetration tool. Means are available in many markets for manufacturers to see what types and brands builders are using. Some of these tools can tell a manufacturer exactly the brand and amounts being used by each builder at each building site. By using such information in conjunction with aggressive targeted rebates, manufacturers can target specific builders and geographic areas to change the supply chain in that market. By creating builder demand, the manufacturer can insure a space in the crowded local product suppliers' or subcontractors' warehouse.
Also indicative of the divergent views on rebates, builders often view the rebate claim process with skepticism. Builders voice concern over the process, saying that it is normally too cumbersome and that they miss some of the rebates. Because rebates are a vehicle for manufacturers, they should be the ones to take care of the auditing, seamlessly paying out the rebates to the builder without the builder having to file claims, according to one Top 10 builder.
Best practices for both the seller and purchaser would demand that the seller use a value-added sales approach with the builder to understand and respond to each builder's needs concerning rebates, and that the builder use a “lowest cost over time” formula to make comparisons and decisions. This approach will help to put rebates in perspective for the complete supply chain.
Rebate Gap BIG BUILDER research shows that among the nation's largest builders, achieving the lowest cost over time is decidedly more important than simply getting the biggest rebate; manufacturers, however, view lowest cost over time and biggest rebate as having nearly equal importance.