Musings on Digital Rebates

I hope everyone is getting ready to enjoy the summer season and if you’re like me, you’re mind can’t comprehend that we are almost halfway through 2024.

I thought it might be a good time of year for some reflection on the past few months, which is why today we are talking about digital rebates.

In full transparency, digital rebates are a solution that WeStock offers, but this issue is going to be more focused on the general things I have learned about digital rebates over the past year and I won’t be mentioning any platforms specifically given our involvement in the space.

We spent the first four years building WeStock primarily focused on consumer demand data. We helped hundreds of brands secure new retail placement, but early last year many of those same brands were asking for a better mechanism to drive consumers in-store. Which eventually led us to digital rebates.

There is what seems like a gold rush happening with digital rebates right now.

Multiple startups are getting into the space while companies who have been servicing omnichannel brands with other offerings are testing it out as a new revenue stream.

I have my own opinions on the validity of digital rebates as a business model. I don’t necessarily think the TAM is big enough if that is the only offering and there will always be a point of diminishing returns with any digital offer, so you have to expand past just that single feature.

Still, they are a great top-of-funnel customer acquisition tool, and depending on the provider you pick, they can provide a level of visibility and scalability to your trade spend efforts that have not been available to brands in the past.

For us, the digital rebate journey has been an eventful one over the past year.

We tested print-at-home coupons to start, but we couldn’t track them and the open rates from those emailed coupons were low. Plus there is a level of uncontrolled fraud that occurs with any print-at-home function.

Next, we tested a two-way SMS rebate and it was a mess to start. It worked, but it was a mess. I commend all of our brand partners who stuck with us during this time and appreciated all their feedback as we finalized our solution late last year.

We have settled on a blended rebate solution that is delivered both via SMS and email. It works well for our brand partners, provides a seamless experience for the consumer, and has been a large piece of our triple-digit growth this year.

I have learned a lot this past year when it comes to digital rebates and no matter the platform you pick (there are a lot of good ones out there), I think these lessons might be helpful for anyone looking to dip their toe into the digital rebate pool.

It is a Tool, Not a Strategy

Trade spend is a black hole for most brands. You spend because the retailer and the distributor tell you to spend. You spend on programs that they tell you to spend on. You do all of this in most cases just to save face with the retailer and distributor while positioning yourself as a good partner.

Trade spend is going to be the second biggest line item on your P&L most years and when the fiscal year ends and you look at all those zeros under trade spend, the truth is that most brands are going to have very little data to understand the ROI of that trade spend.

Promotions, coupons, circular placements, demos, and now retail media.

It’s a menu of different levers that you need to pull to drive velocity, but none of it is with the lifetime value of the consumer in mind.

You can’t build LTV without first-party data.

If you don’t know who the customer is, what they bought, where they bought it, and their contact information. You are just paying for one-time sales spikes.

You need those yearly spikes in your trade spend strategy to show the retailer and distributor that you are going to support them, but you also need mechanisms in place to ensure you are going to capture a percentage of those consumers in your CRM so that you can nurture, educate, and push them to purchase again and again.

It’s important to remember that this is an isolated tool.

You should use rebates as an always-on mechanism to capture consumer data, build your audience, and drive incremental sales.

You can’t however only rely on digital rebates alone. You need to have a mix of strategies and tools to be successful on the shelf. It’s a tool, not a complete strategy.

Don’t Depend Only on Third-Party Audiences

There are a lot of platforms that are positioned around the delivery of your offer to their audience.

That sounds great in theory, but the issue is that most of these shoppers are deal hunters and don’t fit your ideal customer profile.

If you're simply giving the product away to consumers outside of your ICP, then yes you will see velocity gains, but the trailing lift won’t be sustained.

If you're gaining access to those customers’ first-party data then it can be valuable since you can educate and nurture those deal-hunter shoppers to become long-term customers, but you do need to ask any platform you use about the quality of the targeting and if you're getting access to the all the consumer data.

These large third-party audiences are great for one-time sales boosts and can 100% be a part of a successful trade spend strategy.

If you're going to test a third-party audience I would make sure it’s a platform that has an audience of 1M+ since anything less is not big enough to target and segment effectively for your brand.

Velocity is Secondary

The biggest benefit of digital rebates is the ability to grow your audience quickly and affordably.

It's been great to drive in-store sales for our brands, but it's been even more impactful to grow their overall retail audience.

The velocity and in-store sales are a byproduct of running digital rebates, but we try to be very clear with our customers that it’s a secondary benefit.

The primary benefit is growing your audience.

Digital rebates are a very effective tool to acquire emails and phone numbers while understanding where potential customers shop.

This is the long-term value of running these programs because now you can own the direct communication with that customer. That LTV over a year or two is going to drastically outweigh the benefits of a large one-time couponing or rebate program, because you own the consumer.

The Store Is a Showroom

Having the ability to cost-effectively move customers from online to in-store can change how modern brands look at their retail partners.

The store has now become a showroom where you in many cases have single-unit SKUs or affordable case packs available for consumers to buy for less than they have to buy it online.

No minimums and no shipping costs. Simply go into the store, buy the product, and you will get redeemed.

The CAC is drastically lower on that ask of the consumer compared to getting them to buy online and much more scalable.

If you’re viewing your retail partners as a showroom to reduce your overall CAC - you gain a level of control over your business that you didn’t have before.

When you have that customer’s first-party data you can move them in-store with a secondary offer, alert them when you're on promo, ping them when a new flavor drops, or push them to subscribe online.

This pushes brands to look past just the individual performance of one retailer and more towards a truly omnichannel approach of how they are blending their online audience growth with their in-store retail expansion.

This is why we refer to the retailer now as a showroom to reduce CAC for your overall business and not just a point of distribution.

To wrap this up. The main thing you should know about digital rebates is:

✅ They are a cost-effective customer acquisition tool, not a velocity cure-all.

✅ There are great platforms and partners in the space, but it's important to ask the right questions to find the right partner for you.

✅ It's a tool and not a complete retail trade spend strategy.

✅ You should prioritize ownership over the consumer data over anything else.

As we continue to hear about being omnichannel in every conversation, digital rebates will continue to be a hot topic, and I look forward to another year of learning as we continue to navigate our way through the space.