Special pricing agreements (SPAs) are a popular incentive strategy for manufacturers and distributors to collaborate for competitive advantages in pursuit of specific goals. But with an admittedly troubled history and a long list of common names, the subject of SPAs is rife with ambiguity and confusion. Today, we’ll be taking a look at SPAs to clear up some of this uncertainty and shine a light on the true nature of these valuable strategic tools.
What Are SPAs?
SPAs can be a tricky subject to discuss because they’re known by so many different names. Basic communication about SPAs can be confusing as a result, with people using different words or phrases for the same thing. Before we explain the idea behind SPAs, let’s nail down exactly what we’re referring to.
You may know SPAs as:
- Special pricing agreements (SPAs)
- Ship & Debit
- Contract/Price/Sales Support
- Sales Rebate
- Chargebacks (paybacks)
- Claim backs/file backs
While the concept of SPAs wears many masks, everything on the list refers to the same idea: a very specific agreement whereby a manufacturer offers distributors or retailers a discounted price to help them compete when selling the product.
However, the distinction between SPAs and rebates has caused much confusion over the years. To clear this up, let’s answer one of the most common questions we’re asked regarding SPAs: are SPAs rebates?
SPAs vs. Rebates
Short answer: yes. We define anything that comes back from a company you’ve purchased from as a rebate. This would mean that a SPA is one of many subtypes of rebates, but ultimately, SPAs have a different purpose and function than general rebates. SPAs support rebates on a very specific basis once the product is sold, whereas rebates reward the buyer after the initial purchase.
Here are some of the key differences between SPAs and general rebates:
- If you’re entitled to the money when you bought the goods, then the agreement is typically called a rebate. But for SPAs, there’s an extra step: you only become entitled to the money when you’ve sold the product to the end-consumer.
- Rebates are typically a larger company-wide agreement, while SPAs are bundles of several agreements. You can have hundreds or thousands of agreements for just one customer.
- Rebates are often value for longer durations of time, while SPAs frequently have a shorter term.
- SPAs are very targeted to specific product ranges, usually designed to help sell a given product to a given customer, while rebates can be very broad.
- Rebates are often negotiated by the Procurement team or category managers, while SPAs are negotiated by the Sales team.
To better understand SPAs and how they’re used in the modern market, we need to take a step back and get a little context.
For an even more in-depth look at SPAs, download our whitepaper Rebate Management Basics: The Fundamentals of Special Pricing Agreements.
The History and Legacy of SPAs
While SPAs have likely been in use far longer, the concept first came into the public consciousness for their admittedly shady role in the 19th century railroad industry. In fact, rebates and SPAs (then referred to as “drawbacks”) are some of the tools that notorious tycoon John D. Rockefeller used (or, rather, misused) to take control of the oil industry throughout the late 1800s. Rockefeller’s illegal pricing schemes put countless others out of business, eventually serving as the impetus for modern anti-trust laws.
With new laws that protect and regulate pricing paving the way for a more equitable market, SPAs have since become a fair and legal way to promote business growth. However, the shady shenanigans of the Rockefeller era have floated back up in recent times, resulting in even more stringent anti-competitive legislation (especially surrounding pricing) being passed in the UK. SPAs can serve as a secret weapon for many businesses, but if we hope to continue to benefit from them, they must stay on the up-and-up.
You can access the full Rebate Strategist University: Introduction to SPAs webinar on-demand here.
The Purpose of SPAs
Let’s address the elephant in the room: SPAs have developed a reputation for complexity. In fact, SPAs are perceived as one of the most complicated and frustrating types of agreements for a business to manage. However, just because a tool takes a bit of understanding to use efficiently doesn’t mean it lacks value.
SPAs can be a great tool for a manufacturer that doesn’t want to devalue their product across entire industry. If you want to sell to specific customers or grow in specific markets, SPAs are a valuable strategic tool. For example, if a distributor is selling to a market that the manufacturer is looking to gain a foothold in, they may offer to make their product cheaper for the distributor. That way, the manufacturer gets their foot in the door of a new market while the distributor gets a better margin on the sale. This is just one of the ways that SPAs can be used strategically to benefit businesses on both sides of the agreement.
SPAs can also be used to…
- Grow sales, market share and brand awareness
- Preserve loyalty in trading relationships with a price protection incentive to keep your partners invested
- Stay competitive in hostile market conditions
- Minimize cross-distributor pricing conflicts
- Create a pricing floor to avoid a “race to the bottom” in future negotiations
For more on the benefits of SPAs, check out our blog, 5 Benefits of Using Special Pricing Agreements.
Making the Most of SPAs with Automation
Managing SPAs isn’t easy, especially for those that elect to do so manually. Using spreadsheets and email chains to track your contracts is an unfortunately popular recipe for disaster. Not only do these systems lack any of the advanced features you would need to manage SPAs efficiently, but they frequently lead to confusion, ambiguity and preventable human error.
Some of the most common challenges of manual SPA management include:
- Significant manual manipulation and calculation
- No single source of truth
- Complexity and time-consuming with minimal automation
- Limited visibility into existing agreements and performance
- No analytics
Finding harmony in your margin, revenue, claims and balance sheet with thousands of contracts to wrangle can be a huge headache, but with an efficient automated system in place, many of the complexities and time-consuming tasks can be swept away with the push of a button. Consider implementing an automated SPA management solution such as Enable to take your SPAs strategy to the next level.
Learn more about how Enable’s SPA solution is solving common problems for manufacturers in our Feature Deep Dive: SPAs for Manufacturers.