Rebate (marketing) - Rationale

Rationale

Rebates have become very popular in retail sales within the United States. Retailers and manufacturers have many reasons to offer them:

• The information given in the rebate form, such as name, address, method of payment, can be used for data mining studies of consumer behavior.
• The information can be used as evidence of a pre-existing business relationship for marketing purposes, such as do not call lists.
• Customers tend to notice price increases and react negatively. Rebates offer retailers the benefit of 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 raised later.
• Rebates also allow companies to "price protect" certain product lines by being selective in which models or brands to 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.
• During the turnaround time, the company can earn interest on the money.
• If the turnaround time crosses into the next fiscal year or quarter, a rebate offer can 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.
• Once the UPC has been removed from the box, retailers can refuse to accept a return of the item.
• 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. Or, some retailers such as BestBuy may not have the rebate form but print out an electronic rebate form, and the rebate processing company will refuse the US$100 rebate stating that even though the consumer filled in all the information, it wasn't on the official piece of paper. Another tactics that might be used is to disguise the rebate mail so that it looks like junk mail, so that it will get overlooked. Rebate processing companies even pride themselves for "returning the least amount of money". It works in the company's favor if buyers do not act quickly to redeem. However, 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.
• 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."..