Rebate (marketing)
Encyclopedia : R : RE : REB : Rebate (marketing)
- For other uses, see Rebate (marketing) (disambiguation)}}}.
The best-known type is the mail-in rebate, an offer in which the purchase of a product entitles the buyer to mail in a coupon, or a receipt and barcode[s] in order to receive a check for a particular amount, depending on the particular product, time, and often place of purchase. Originally this was a way for manufacturers to encourage sales, by giving the money directly back to the customer, rather than the retailers keeping it. [[Citing sources citation needed]]
Rebates are offered by either the retailer or the manufacturer of the particular item. Large stores often work in conjunction with manufacturers, often requiring two or even three separate rebates for each item. Manufacturer rebates are sometimes valid only at a single store. Rebate forms and special receipts are sometimes printed by the cash register at time of purchase on a separate receipt or available online for download.
Rebates are heavily used for advertised sales in retail stores in the United States, such as Best Buy and Staples. However, Best Buy, in April 2005, announced that they would be eliminating most mail-in-rebates. This is part of their "customer centric" operating shift. http://arstechnica.com/news.ars/post/20060125-6055.html
Personal computer components and electronics seem to have a large portion of rebate sales. For example, an item might be advertised as "$39 after rebate" with the item costing $79 OTD (out-the-door) with a $40 rebate that the customer would need to redeem. The turnaround time is generally four to eight weeks, though some rebates note a period of eight to twelve weeks.
Most rebates are handled under contract by rebate clearinghouses that specialize in processing rebates and contest applications. The source of their fees is not readily discernable with conflicting reports from different sides. Some claim that they are covered by the customer money that the manufacturer or retailer keeps from unredeemed rebates. [[Citing sources citation needed]] Roger D. Andersen, CEO of Young America, a rebate clearinghouse claims "Young America receives the same fees whether a submission is valid or invalid," which gives them no incentive to unfairly invalidate customer rebates. http://www.businessweek.com/bwdaily/dnflash/nov2005/nf20051123_4158_db016.htm . Young America is currently under investigation by the state of Massachusetts for keeping unclaimed rebate checks. http://www.mass.gov/treasury/PressReleases/11705.htm . Frank Giordano, founder of TCA Fulliment, claims "We get paid for every redemption request we enter in the system. If we don't put it in the system, we don't get paid." http://pcworld.about.com/magazine/2203p135id114150.htm. TCA is also notable for a "Rebate Redemption Guide" that was sent to prospective clients touting the low redemption rates that they would have with TCA as their rebate fulliment center, promising 20% less then their competitors. http://www.businessweek.com/bwdaily/dnflash/nov2005/nf20051123_4158_db016.htm
Although rebates are common in the United States and Canada, many areas of the world do not use them and even consider them to be illegally deceptive under various laws amounting to "price displayed is price paid". [[Citing sources citation needed]]
Rationale
Rebates have become very popular in retail sales. Retailers and manufacturers have good reasons to offer them:
- Customers tend to notice prices increases and reactive negatively more so then they would notice a price decrease. Rebates offer retailers the benefit of a giving customers a temporary discount on an item, to stimulate sales, while allowing it to maintain its current price point. This method avoids the negative backlash that could be perceived with a price being lowered and then risen later. http://www.bsu.edu/majb/resource/pdf/vol01num2.pdf#Page=38
- Rebates also allow companies to "price protect" certain product lines by being selective in which models or brands be discounted. This allows retailers and manufacturers to move some product at lower cost while maintaining prices of successful models. A straight price reduction on some models would have a domino effect on all products in a line. http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2000/12/18/BU142549.DTL&type=printable
- During the turnaround time, the company can continue to earn interest on the money.
- If the turnaround time crosses into the next fiscal year or quarter, a rebate offer can be used to inflate sales in the current period, and not have to be accounted for until the next period-and then it could be attributed as a cost reducing sales or expense for the next period giving companies an accounting advantage with their Wall Street projections.
- Extended warranties and other price-dependent factors always use the initial purchase price, not the price after the rebate. This is normally because if the company has to refund the customer the "replacement value", it would be the before rebate "in-store" price.
- If the rebate is from the manufacturer, the retailer has a "free" sale.
- If the rebate is from the retailer, the manufacturer has "free" advertising.
- Rebate can also be used to collect consumer information as it is required by most rebate forms for consumers to fill in personal or household information. This information can be used by producer or retailer to analyze consumer behavior.
- Once the UPC has been removed from the box, retailers can refuse to accept a return of the item. The inability to return a product (and therefore lose its profit, however slim) is attractive to both retailer and manufacturer alike.
- Not all buyers will meet the criteria to receive the rebate. Companies often require the original UPC barcode, receipt, and additional information, which a buyer may forget to include when redeeming the rebate. Companies almost always add other caveats to the rebate as well, such as the redemption having to be postmarked by a certain date. It works in the company's favor if buyers do not act quickly to redeem. Though a University of Florida study notes that shorter redemption periods actually increase the redemption rate in the consumer's favor because it gives them less time for procrastination to set in.http://news.ufl.edu/2004/06/15/rebates/
- New companies that want to make a break into a market can offer substantial rebate savings on their new product as a means of capturing a customer's attention. Zeus Kerravala, vice president at the Yankee Group, has said "For companies that haven't been in a particular market, the rebate that essentially refunds the customer's money is a great way to get people to pay attention to them, This is especially true in consumer electronics, where brand name does matter. It's a good way to get customers to take a chance on a new brand."http://www.ecommercetimes.com/story/21690.html
Alleged benefits for consumers
Rebates give customers an avenue to a better value by redeeming the rebates. The amount of time and effort required in comparison to the savings potential is a weight to measure for each individual consumer. The very fact that some consumers do not redeem their rebates is what allows companies the ability to offer such value pricing in the first place that many consumers do capitalize on. Deal hunter sites frequently tout the benefits of rebates in making technology affordable “Rebates are the meat and potatoes of the ultimate tech deal, no matter what you are buying… They are paying you money to buy their stuff. All you have to do is take it.”http://www.cpaadvisor.us/sub/2_tech_challenge.htm.
Industry advisers note that if mail in rebates go away, they will not be replaced by "instant rebates" of the same value amount because of the loss of the tanigible benefits listed above (fiscal accounting, price protection, etc.) Steve Baker, vice president of industry analysis for NPD Group, comments that "It's a case of be careful of what you ask for. You may see some great deals go away." http://articles.moneycentral.msn.com/SavingandDebt/ConsumerActionGuide/DontGetRippedOffByaRebateDeal.aspx?page=1
Redemption rate inconsistencies
It is difficult to get an account of redemption rates from most rebate companies, partly due to a reluctance on the part of rebate fulfillment houses to release confidential business information. Among different sources radically different numbers on both ends of the spectrum can be cited. Part of the reason is that most "redemption rates" don't distinguished whether they are calculated as part of total sales or incremental sales.
- PMA, a marketing firm, estimated that in 2005 $486.5 million worth of rebates were redeemed. The redemption rates averaged 21.1% when calculated as a percentage of total sales, and 67.6% when calculated as a percentage of incremental sales. They go on to note “These statistics reveal that redemption rates calculated as a percentage of total sales can be misleading when diluted by non-incremental sales, consequently making redemption rates appear lower than they truly are.” http://www.pmalink.org/resources/res_2005rebates.php
- Not all buyers remember to mail the coupons, a phenomenon known in the industry as breakage, or the shoebox effect. Though it can be used interchangeably with breakage -http://www.cbc.ca/consumers/market/files/money/rebates/marketing.html slippage is the phenomenon when a consumer has their rebate fulfilled but they lose or forget to cash the check. Some rebate companies could tout a higher "redemption rate" including the breakage, while not calculating the potential slippage of uncashed checks.
Some redemption estimates
- BusinessWeek recently estimated a return rate of just 60 percent. Some estimates have been as low as 2%. For example, nearly half of the 100,000 new TiVo subscribers in 2005 failed to receive their $100 rebates, allowing the company to keep $5,000,000 in additional profit entitled to the customers rather than the company. http://www.businessweek.com/bwdaily/dnflash/nov2005/nf20051123_4158_db016.htm
- Roger Lanctot, senior director of research at PC Data in the Reston, Va estimates between "10 and 30 percent". http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2000/12/18/BU142549.DTL&type=printable
- Chris Quinlan, co-founder of PlusNetMarketing in Wilmington, quotes 80% http://www.networkworld.com/net.worker/columnists/2004/0301gaskin.html
- Carol de Ville, the vice president of sales of Marco Sales and Incentives notes “In some cases, we do have redemption programs that go as high as forty to fifty per cent, but generally it’s about one to five per cent”. In the same article, John Challinor, advertising manager for Sony Canada remarks that “The industry average is less than ten percent....and it can be as low as one percent. http://www.cbc.ca/consumers/market/files/money/rebates/marketing.html
- NPD Group, a marketing firm, estimates 50% to 70% http://articles.moneycentral.msn.com/SavingandDebt/ConsumerActionGuide/DontGetRippedOffByaRebateDeal.aspx?page=1
Consumer caveats
- State tax law requires that Sales tax be calculated on the initial purchase price, not the price after the rebate. A $199 item with a $150 rebate is advertised as only "$49", but the customer must pay tax on $199. Rebates will not refund the sales tax, the cost of the postage or envelope, or the interest value of the refund during the waiting period before its arrival.
- As above, once the UPC has been removed from the box, retailers may not accept a return of the item. Customers should ensure that they do not need to return the item before mailing the rebate.
- Consumers should always read rebate rules carefully and follow them to the letter. The following are common:
- * Rebates usually require the consumer to submit either original or a copy of UPC from the product's box and mail it with the rebate form. This will typically need to be cut out from the product packaging.
- * UPC codes can also be called the "EDP Label", adding to confusion. When in doubt over multiple "barcoded" items on the box, cut them all out and affix them to a page to be submitted with the rebate. Rebate companies can not decline your rebate for sending in "too much" information.
- * Rebates usually require the consumer to submit the original sales receipt (or sometimes a copy), and circle the item purchased.
- * Rebates usually require the consumer to accompany the UPC and the receipt with a properly filled-out rebate form. Some rebate forms have a place for a signature. It is important to include it, otherwise the rebate will be rejected.
- Consumers should make copies of all the materials they are mailing in case the rebate is rejected.
- To help ensure that the small UPC cut out is not lost, affix by paperclip the UPC to the rebate form. Some rebate forms have explicit rules against stapling items to the rebate form.
- For high-value rebates, consumers should send materials via certified mail to ensure proof of both the mail date and the receipt. If the rebate goes to a PO box, do not send by certified mail as only the post office will sign for it, not the company.
- Since rebate turnaround time is typically months away, consumers should keep records for the rebates they send in. It also helps to set up reminders to go back and check on the status of rebate submissions.
- If the rebate is rejected, it may be difficult to resubmit it, since required documentation such as the original receipt is usually sent with the original request and sometimes copies may not be accepted. Normally rebate clearinghouses will give the customer some recourse to allow for resubmission within a short time frame. If you receive a rejection notice, ask about your options and, if need be, go to the site of purchase and see what they maybe able to help with.
- Some sellers may cancel rebates without prior notice. Buyers could end up purchasing the item without knowing that the rebates were no longer active. Most retailers will honor cancelled rebates if they were still advertising them after the cancellation period. It is best to contact the company's Customer Relations department if you encounter this type of issue.
- Watch your mail carefully. Sometimes rebate "checks" can appear to be junk mail or post cards and get accidentally discarded.
General complaints
The consumer electronics and software industry relies on rebates more heavily than others, and, as such, receives more complaints.Microsoft, for example, offered a $300 rebate for people upgrading to new versions of Visual Studio or Visual Basic several years ago. The offer, however, was contingent on including the UPC code from the original program, not the newly purchased upgrade; this caught many buyers by surprise.
Other software suppliers, like Symantec and Pinnacle Systems, have been accused of designing rebate models that are over-complicated, require forms to be sent to two or three different processing centers, or are explained in extremely small print. Many software rebates advertise programs at a "net-zero" cost to the customer, and this strategy necessarily involves efforts from the manufacturer, the retailer, and the rebate processor. As a result, the process can become confusing.
Long term ISP contracts are often associated with rebates, as well. At big box stores like BestBuy and CompUSA, personal computers are regularly sold with sizable rebates attached, making the advertised price more attractive to buyers. It is common, though, for these rebates to be conditional upon signing a long term contract with a particular ISP, which some users may object to.
Hardware manufacturers have come under fire, also. Dell, for one, has been the subject of rebate complaints involving misprinted receipts, confusing expiry dates, and service representatives who are slow to react. Rebate issues began to clog Dell's customer service forums, leading the company to shut down that portion of the website [[Citing sources citation needed]], and refocus its energy on new online customer care solutions.
Cell phone service companies, including major players like Verizon Wireless and Cingular, as well as third-party retailers like Radio Shack, Wirefly, LetsTalk.com, Simply Wireless, and others have received growing attention due to complex rebate redemption rules. Both carriers and retailers make customers submit rebate claims during a 30-day window, often 6 months after cell phone activation. [link] Some authorized dealers have responded by trying to make rebate requirements more transparent, explaining that the carrier will withdraw payment from them if a customer quits service before the end of the contract. [link]
OnRebate.com, which is most often spotted handling rebates for Tigerdirect.com (a sister company), is widely known to simply reject rebates without further comment, and without a documented appeals process. For example, many OnRebate rebates require online registration which generates a confirmation email -- this email is often not sent, and customer support is lacking. [[Citing sources citation needed]]
Rebates as a form of price discrimination
A common complaint against rebates is the claim that rebates can be used as a form of “price discrimination” against the less “sophisticated” lower classes who are less likely to redeem rebates then a more educated middle class. http://www.bsu.edu/majb/resource/pdf/vol01num2.pdf#Page=38 Sridhar Moorthy, marketing professor at the University of Toronto also advocates a “price discrimination” theory between “people who are price-sensitive and people who are not price-sensitive.” http://www.cbc.ca/consumers/market/files/money/rebates/marketing.html . A different view, as taken by the BusinessWeek article, is that rebates can be viewed as a “tax on the disorganized” that is paid by those who do not submit their rebates as opposed to those who do.
Recent trends
Some retailers have taken a step forward with offering consumers new ways to submit their rebates easily over the Internet, completely or partially removing any mail in requirements. Staples, CompUSA, Best Buy and Rite Aid currently offer an online submission option for all or some of the rebates they offer. These special rebates are usually identified as such and have instructions for full or partial online submissions. This is touted as a more accurate processing of the rebate, reducing the potential for human or mechanical error and in many cases eliminate the postage costs associated with traditional mail in rebates. Virtually all the retailers mentioned above still let consumers submit rebates by mail if they so choose to.
External links
- [FatWallet Rebate Info Thread] Extensive listing of Rebate Companies, contact info and complaint avenues
- [Rebate Report Card] - rebate complaints and company rankings by consumers.
- [Rebates Tracker] - a website where consumers can keep track of rebate submissions.
- [BusinessWeek article on rebates.]
- [Rebate Reminder] - a simple freeware software to keep track of all your rebates. Requires the Microsoft .NET Framework v1.1
- [The Skinny on Wireless Rebates] - Make sure you receive your promised wireless rebates
Footnotes
From Wikipedia, the Free Encyclopedia. Original article here. Support Wikipedia by contributing or donating.
All text is available under the terms of the GNU Free Documentation License See Wikipedia Copyrights for details.