Sell-through allowances are sales incentives offered by manufacturers to help distributors with margin protection with a retroactive discount off list price. These incentives are then paid out after the sale is made at the retail level. With a computerized STA module that replaces the slower paper-based process, which have the potential for human errors and inaccuracies, manufacturers can successfully implement, measure and manage STAs.
Our research shows the right STA platform gives both manufacturers and dealers real-time visibility into the final sale price for each piece of inventory. Retailers can then use this reporting to ensure the accuracy of P&L statements for their lenders. But manufacturers have the real visibility advantage because they can monitor the sales channel and the program’s effectiveness, which allows them to react in real time.
“Real-time visibility gives manufacturers and dealers into final sale prices.”
STAs: What they are and the value they bring to dealers
STAs haven’t been popular with retailers in years past. But well-executed STAs that are customized to each dealer addresses several potential hangups that many retailers have with them. According to our recent data, not only do they allow manufacturers to provide discounts for dealers on new products that are payable after sale, but also retailers can use the proceeds of these rebates to improve profit margins, offer SPIFF programs to dealers or push these discounts onto customers in the form of rebates payable instantly at the point of sale. Dealers also do not need to tie up large amounts of cash in an oversupply of manufacturer products, which allows distributors to re-order more products as needed depending on their local market conditions.
The ultimate goal of STAs is to provide competitive advantages for the dealer while avoiding the inventory flow problems associated with traditional buy-in discount programs. Selling products based solely on price to compete misses the opportunity to promote the value of better products. While this is the reality for many dealers today as they are concerned about their own cash flow risks, STAs enable dealers to order only the products they need from manufacturers, which significantly reduces overhead costs and improves the bottom line.
The value for manufacturers
Manufacturers benefit from the fact that STAs ensure products sell at list price on the front end and discounted on only sell-through so dealers do not overload their warehouses to manipulate the incentive process. With that said, dealers may also want to buy manufacturers products in bulk, but through an effective STA module, manufacturers can balance the needs of both parties. The goal is for manufacturers to have more control over the distribution of their products. This will stabilize manufacturing demand and cash flows by preventing any substantial spikes or drops in sales.
A well run STA program may bring short-term growth in sales by giving the dealer more incentive and ultimately shifting mind share and shelf space of manufacturer products. It will also substantially reduce end-of-life programs and trailing credits while eliminating the need to employ multiple pricing strategies in various regions, which may all combine to provide more consistent profit results.
STAs have the potential to be a win-win for both dealers and manufacturers by enabling them to maintain their margins.
Quick payouts: The biggest advantage
Quick and consistent STA payouts on a weekly basis resolve many hangups dealers and manufacturers have with the programs. Two specific issues many retailers have with STAs are that manufacturers are either too slow in issuing payouts or that the dealer ends up financing the manufacturer’s marketing campaigns. Consistent cash flow from the manufacturer’s incentives gives dealers more motivation to buy and sell their products to make their STA claims,
This, of course, benefits manufacturers as well. They maintain a healthier and more consistent cash flow because they don’t experience the AP drain resulting from a spike of mass quarterly incentive payouts.
While all STAs will vary depending on the needs of the manufacturer and the dealer, there is a broader value to the programs. With an STA program that focuses on incentivizing dealers, manufacturers can build strong sales channel partnerships and ultimately give them what they really want: Consumers buying their products.