Manufacturer Buy Down Program Introduction

The "buy down" strategy involves offering financial incentives to manufacturers for water conserving products, with the agreement that the manufacturer, distributor, and retailer will pass the savings onto the customer in the retail price.   The concept is based on the providing the manufacturer with the financial means to offset initial design and fabrication costs to convert industrial production to the new product, in hopes that the product will remain at a low cost after the market has been converted.  

This strategy achieved great success in the energy conservation industry for advancing the sales and use of compact fluorescent light bulbs in California.  The program is somewhat complicated to first implement, but can have lasting effects beyond the initial buyback program.    The price of compact fluorescent bulbs dropped from $20 to $5 in only a few years due to these efforts, and remains relatively low 15 years after the energy utilities ended the buyback program.  Manufacturers, retailers and consumers have dramatically changed the market share of the bulbs.

The advantage to a buy-down strategy is it provides financial incentives for the consumer to purchase water efficient products, while eliminating of costs and hassles of processing rebates or vouchers.  The retailer and manufacturer often provide robust marketing for these programs, with minimal effort and cost to the water utility.  The strategy is projected to provide long-term rewards from short term efforts by the utility; it is expected the price of the product will remain low even after the utility’s buy-down funding has been expended.

The biggest disadvantage to the water utility is the inability to control participants.   It is unfeasible for retailers to verify each purchaser is a customer of the utility funding the program.  It is likely for a portion of purchasers to use the water efficient product in home not part of the water utility’s service territory.  This program is only applicable to very large service areas, and somewhat remote from neighboring utilities not funding the program.  There is also the potential for unscrupulous businesses to purchase the products at the discount, and then re-selling the products at full price outside the intended service area.   These potential threats are not insurmountable; a utility must be cautious and careful to design a program that minimizes participation from non-customers.  Past successes have occurred where several large utilities collaborated to create regional or statewide buy-down programs.

These programs take a great amount of effort and man-hours to initiate, though the benefits are worthy.  The utility must garner participation from the manufacturers, the distributors and the retail outlets.  Contractual agreements between all entities are required to assure the buy-down funding provided by the utility fully benefits the consumer.  Often such agreements include additional price reductions by the manufacturers, the distributors and the retailers.  In this manner, a $5 buy-down from the utility can be supplemented by addition price reductions from the other entities, resulting in a $10 discount for the consumer. 

Buy-down programs are an excellent means to maximize water utility funding by obtaining matching funds from manufacturers, distributors and retailers.  The program requires intensive effort to initiate and first implement, but is relatively easy to later monitor and maintain.  The key to its long-term success is transforming the market place; where manufacturers and retailers continue to offer the water efficient products at reduced pricing, and consumers continue to purchase the products long after the utility funding has ceased.