Marketing/Rebate Programs

The crop protection industry has long made a practice of employing marketing programs to sell products through the channel. These programs, which include discounts and rebates from manufacturers to the distribution channel, are not without a measure of effectiveness. However, as they’ve evolved, marketing programs have become highly inefficient.

Since they were first introduced around 1980, marketing programs have increased in size each year. Marketing programs now constitutes an average 25% of the manufacturer selling price, and the range goes north of 50% for some products. Channel margins obtained from the marketplace and also from retention of discounts/rebates from manufacturers on average total only 11% to 12%. This means, on average, there is a 13% to 14% negative up-front margin.

Despite the obvious inefficiency in the system, no manufacturer has found a better way to achieve their objectives through the channel, or even to recalibrate the system to increase efficiency and efficacy. Retail networks enjoy the luxury of high payments and feel that continuation of the status quo is in their best interest, so they have not put energy into promoting change.

As we consider “the big ideas” of the year or years ahead, we ask: Can these marketing programs continue to increase without either precipitating change or preventing a normal and necessary market evolution?

The goal is that the whole system — the grower, the retail networks/distribution channel, and manufacturers — contribute to the ever greater productivity needed from agriculture in the future. Accepting inefficiency, and worse, propping up inefficient players (even if unintentional), doesn’t contribute.

Why These Programs?

Marketing programs help differentiate a manufacturer’s offering. The most effective marketing programs define objective criteria of clear value to the manufacturer and the market, are doable by the channel partner, and the criteria are adhered to/correlated to payments. They differentiate the manufacturer in a way that is valuable to the channel companies, and difficult or impossible for competitors of the manufacturer to match directly. Changed periodically, programs become neither predictable nor taken for granted. In turn, they have value and cost in balance and are an opportunity for all parties to benefit.

Today, however, with a few exceptions, marketing programs from manufacturers primarily enable channel companies protection from their own weakness with upfront margin procurement in return for some commitment on priority.

Use, Dollar Values Increase

Since their introduction with pyrethroids three decades ago, crop protection marketing programs have increased (as a percentage of gross sales) more than tenfold. However, profitability retained by the distribution channel/retail networks has grown only slightly.

The portion of the industry represented by unique products — those which had no generic or in-kind competition — declined. And as it did, the importance of the distribution channel/retail networks and the need to differentiate in non-product ways increased.

By 2007, the average had grown to represent over 25% of the selling price.

As the rebates have grown, they’ve come to represent an astoundingly large dollar figure — more than $1.5 billion dollars paid annually. Marketing programs are second only to cost of goods in size of expenditure by manufacturers. That percentage has continued to increase 4% to 5% per year in recent years. Still, they are only partially effective.

We’ve Always Done It That Way

A “because we’ve always done it that way” mentality often, over time, precludes efficiency.

As the industry has matured, we’ve seen an increasing portion of products with expired patents (generic options) and/or in-kind options. That shifted the power from research-based manufacturers to the owner of the retail interface, the retailer/retail network. Retailers have the primary influence on the grower and can shift brand choice on equivalent/nearly equivalent products. Further, we’ve seen the consolidation of generics companies to be larger, stronger, and more service-oriented, which further shifted power from the basics to the distribution channel.

Ultimately, we have witnessed sweeping industry system changes that were driven by marketing programs and now sustain them, e.g., a shift by basic manufacturers to net sales from gross sales where marketing programs were an expense. Now they are off the P&L by making them an off-revenue accrual. In essence, rebates have become part of pricing.

What Can Be Done?

The current state of crop protection marketing programs seems to defy common sense and would certainly benefit from a recalibration. But how?

We know that no single manufacturer has any chance for successfully replacing marketing programs with a net pricing model. Collaborative activity isn’t an option. If any two or three manufacturers made changes with any similarity, they would likely receive Security and Exchange Commission/Justice Department scrutiny.

The distribution channel and retail networks certainly want marketing programs to continue, so we don’t expect change from there. In summary, no single company, manufacturer, or distributor/retailer has energy at this time to change the game, alter the model, or lead the change.

However, recalibration, while not urgent, could be very effective. To start, manufacturers should set measurable, value-adding, objective criteria. They should work out win/win objectives with the channel using the criteria and metrics — and then adhere to the objective criteria religiously to determine the level of marketing program payment. Since this new breed of marketing approach would not include a guaranteed payment, they would be less likely to be passed through. Recalibration should/would also keep value in use for growers paramount — so growers would not be penalized.

Retailers and retail networks are eager to effectively compete for their grower customers’ business. They can help by expressing a desire and support for win/win arrangements that strengthen their business, add value for their grower-customers, and deliver value for the dollar to their partner manufacturer. Retailers and retail networks should also cease creating and maintaining systems to estimate net, net pricing, and putting these in the hands of their sales team! They win when they continue to sell service and value.

Everyone in the industry should accept that some companies (especially in the channel) won’t survive. Ideally, that would be the weakest entities. Tweaking marketing programs helps assure that evolution favors the smart, the strong, and well-managed — and yields greater productivity of the entire system.

Other solutions might come from new technologies that capture point-of-sale information, provide more objective metrics, and tie more closely with performance. Some such systems, as employed in the consumer sector, may provide still another means to better capture value and positively evolve our industry toward greater productivity.

New mindsets will be required. But rather than doing it for the sake of “we’ve always done it that way,” it’s definitely time to consider every means possible to operate more efficiently and to grow productivity.

Leave a Reply

Management Stories

ManagementPresident Trump, Wisconsin Review, and a Dow-DuPont Update
January 18, 2017
Editors Paul Schrimpf and Eric Sfiligoj reflect on a new administration, a recent winter show, and crop protection company mergers. Read More
Werner Baumann, Bayer AG, and Hugh Grant, Monsanto
Industry NewsReport: Monsanto, Bayer CEOs Among Latest to Make Trump Tower Pilgrimage
January 18, 2017
The chief executive officers of German chemical giant Bayer AG and U.S. seed behemoth Monsanto, Werner Baumann and Hugh Grant, Read More
Management3 Financial Trends To Watch In Agriculture
January 17, 2017
I recently had the opportunity to attend a meeting of credit managers for Midwest ag supply and input companies, in part Read More
Fall Creek Seth Harden The Nature Conservancy
StewardshipLocal Farmers’ Watershed Initiative: Continuous Improvement Is Possible In 5 Key Areas
January 13, 2017
The goal in the Big Pine Watershed Project is to more intentionally do what local farmers and responsible ag retailers Read More
Trending Articles
AgriSync
Matt Hopkins17 Agriculture Apps That Will Help You Farm Smarter In 2017
December 9, 2016
Ag professionals are working smarter, not harder, than ever before. Smart farming technologies have enabled them to reduce costs, maximize Read More
R4023 Sprayer, John Deere
CropLife 100Ag Retail Equipment Report: The Green Party Continues
December 7, 2016
In the annual race for sales in the ag retail equipment marketplace, the color schemes for participants are a little Read More
Mike Stern
Precision AgClimate Corp. CEO Talks Retailer Support For Digital Ag
December 1, 2016
CropLife Magazine’s sister publication, AgriBusiness Global, recently sat down with Mike Stern, CEO of The Climate Corp., following the Monsanto subsidiary’s Read More
Precision AgTrimble Debuts End-to-End FMIS Platform
November 28, 2016
October’s inaugural PrecisionAg Vision Conference left this author with many thoughts and things to ponder in the coming months. Probably Read More
CHS Primeland
CropLife 100The 2016 CropLife 100 Report: Reviewing The Many Bulls And Bears Impacting This Year’s Marketplace
November 28, 2016
For virtually all of 2016, the nation was wholly focused on the big Presidential election. Some folks aligned themselves with Read More
Monsanto sign
Crop InputsMissouri Governor Meets With Bayer CEO To Discuss Monsanto Merger
November 21, 2016
Missouri Gov. Jay Nixon visited Bayer AG global headquarters in Leverkusen, Germany, on November 18 to discuss the proposed Bayer-Monsanto Read More
Latest News
ManagementPresident Trump, Wisconsin Review, and a Dow-DuPont Upd…
January 18, 2017
Editors Paul Schrimpf and Eric Sfiligoj reflect on a new administration, a recent winter show, and crop protection company mergers. Read More
Industry NewsBayer, MS Technologies Get China Approval For Balance G…
January 18, 2017
MS Technologies and Bayer have received import approval from China for Balance GT soybeans. The new Balance GT Soybean Performance Read More
Werner Baumann, Bayer AG, and Hugh Grant, Monsanto
Industry NewsReport: Monsanto, Bayer CEOs Among Latest to Make Trump…
January 18, 2017
The chief executive officers of German chemical giant Bayer AG and U.S. seed behemoth Monsanto, Werner Baumann and Hugh Grant, Read More
Giant Ragweed
HerbicidesStudy: Focusing On Weed Seedbank Can Help Manage Herbic…
January 18, 2017
Researchers writing in the latest issue of the journal Weed Science provide important insights on the control of herbicide-resistant giant Read More
Management3 Financial Trends To Watch In Agriculture
January 17, 2017
I recently had the opportunity to attend a meeting of credit managers for Midwest ag supply and input companies, in part Read More
Andersons Retail Store
CropLife 100The Andersons To Close All Retail Stores; Shutdown Does…
January 16, 2017
In a stunning announcement to the Toledo area, The Andersons Inc. said on Sunday that it would close its two Read More
Trimble TMX-2050 In-Cab Display
Eric SfiligojPrecision To Lead Agriculture In 2017?
January 16, 2017
Another new year is upon us! And I’m certain I speak for many in the agricultural world when I say Read More
Corn
Eric SfiligojThe Mood From Madison? In A Holding Pattern
January 16, 2017
Last week, I had the chance to attend the annual Wisconsin AgriBusiness Classic show in Madison, WI. It’s been a Read More
Syngenta Sign
Crop InputsAccenture Helps Syngenta Transform Its Global Logistics
January 13, 2017
Syngenta, a leading agriculture company, has collaborated with Accenture to design and implement a new digital logistics operating model across Read More
Fall Creek Seth Harden The Nature Conservancy
StewardshipLocal Farmers’ Watershed Initiative: Continuous Improve…
January 13, 2017
The goal in the Big Pine Watershed Project is to more intentionally do what local farmers and responsible ag retailers Read More
HerbicidesEPA Expands Enlist Duo Herbicide Registration To 34 Sta…
January 13, 2017
The U.S. EPA has expanded the geography for application of Enlist Duo herbicide from 15 to 34 states. This means Read More
Olson Ag Enterprise
CropLife 100Wilbur-Ellis Acquires Nebraska Seed Retailer
January 13, 2017
Wilbur-Ellis’ Agribusiness, a recognized leader in precision agriculture technology and the distribution and marketing of plant protection, seed and nutritional Read More
ManagementDeere-Precision Planting Update and the Ag Secretary Wa…
January 12, 2017
Editors Paul Schrimpf and Eric Sfiligoj provide the latest on the court date for John Deere/Precision Planting and the quest Read More
Monsanto sign
Seed/BiotechMonsanto, NRGene Form Agreement For Big Data Genomic An…
January 12, 2017
Monsanto Co. and NRGene have announced that the companies have reached a non-exclusive, multi-year global licensing agreement on NRGene’s genome-analysis Read More
AGCO Custom applicator
SprayersAGCO, Asmark Institute To Offer Training For Beginning …
January 11, 2017
AGCO Corp. and the Asmark Institute are collaborating to offer a new training program dedicated to educating and developing custom Read More
ManagementAg Land Values In Limbo In 2017
January 10, 2017
Several factors will come into play in 2017 that will determine the direction of land values. Randy Dickhut, senior vice Read More
Industry NewsPattison Agriculture Positioned To Be Leading Canadian …
January 10, 2017
Pattison Agriculture Limited (Pattison Agriculture), a division of The Jim Pattison Group (the Pattison Group), has announced the merger of Read More
Fertilizer Tender close-up
MicronutrientsHow Micronutrients Fit Into 2017 Fertility Plans
January 10, 2017
Where do micronutrients stand going forward in fertility plans? For one thing, Tim Mundorf, Field Representative with Midwest Laboratories, says Read More