Ken Savage Making IT in Massachusetts

Find Out the Secrets Why Companies Use Rebates

Rebates are a marketing tool used by manufacturers to increase sales, by lowering the cost of a product in the eyes of a customer, without actually dropping the price on the shelf. The company makes available a rebate for those buying the product, let’s say, $20. You buy the product, send the company the filled-out rebate form and proof of purchase, and they mail you a check for $20. Simple, right? Read on.

You might (rightly) ask yourself: if a company wants to increase its sales of a product by dropping the price $20, why don’t they just drop the price by $20? Isn’t it the same thing? Wouldn’t it be easier for the company to do than dealing with the rebate forms and mailing checks and whatnot? The answer to this question becomes obvious when you consider this: there are companies that sell items that cost $X and have an $X rebate (often seen for media such as floppy disks, or low-end components like cheap keyboards). The net cost to you is zero, yet, you almost never see companies just giving away stuff for free in the store! Clearly there is a big difference between rebates and “just dropping the price”.

Some of the reasons why companies use rebates are practical in nature. If a company wants to run a temporary promotion, it’s a lot easier to use a rebate than it is to drop the price and then raise it again: customers react poorly to price rises. It’s also arguably less work for the retailers that sell the product. But the main reason for using rebates instead of dropping prices is that when you drop the price of something, that money is automatically and immediately lost for each and every item sold, while rebates never result in all of the money being lost to the company.

The most important reason for this is simply human nature: a surprising percentage of rebates never are redeemed. Let’s say a customer goes to a store and sees a product he wants that costs $100 and has a $20 rebate. Immediately, the customer says to himself “Wow, what a deal! Only $80!”. In the customer’s mind the product only costs $80. He pays $100 at the checkout, and then takes the item home and starts using it. In his mind, he has only paid $80, and he feels satisfied; but in fact, he’s paid $100! Most rebate forms are relatively easy to fill out, but they still take time to do, and many people forget about them, or lose the form, or wait too long to submit the claim (since they are always time-limited). I don’t know the exact percentage of rebates that go unfilled, but I wouldn’t be surprised if it approached or even exceeded 50%. For all of these sales, the manufacturer gets the full price while getting sales as if the price had been lowered.

Another reason is due to a concept called float: from the time that the manufacturer gets the money for the product you purchased, until the time you cash the rebate check, the rebate money is the company’s. They can use it as they see fit, even for something as simple as letting it sit and earn interest. Many people take weeks to fill out and send in the rebate form, and then most companies take weeks to months to send back the check. In some cases the company gets the use of the money for close to half a year.

Combine the two factors above and you can see why companies use rebates, especially for “free” items. The worst part, unfortunately, is that there’s another catch with rebates: some dishonest companies don’t honor them. You send in the form, you wait the specified number of weeks, and the check never comes at all. This isn’t common, but it definitely happens. Also, some rebates get lost in the mail, or are sent to the wrong address, resulting in problems even with honest firms.

Due to the hassles involved, and the risk of never getting the money, some folks eschew rebates completely. Frankly, I think that’s throwing the baby out with the bathwater. Here are my suggestions for having success with rebates:

• Don’t Count Your Chickens: Be careful when buying an item based on the “net” price after the rebate. If you aren’t going to be meticulous about sending in the rebate form, just shop based on what the item costs out of pocket. Consider any rebate you get a “bonus”. Of course, if you do manage your rebates properly, you might make a better buying decision by figuring in the rebate.
• Don’t Procrastinate: Fill out the rebate form and submit it immediately. If you wait, you’re far more likely to lose the form or miss the deadline, and you are extending the period of time that the company gets to use your rebate money.
• Watch The Dates: It’s common to find items on a shelf that have a rebate sticker on them that has already expired! You buy the item thinking you will have a rebate, get the box home and whoops! You lose
• Watch Your Receipt: Some companies want the original receipt from the vendor, while others will accept a photocopy. Sending away your original receipt is never a good idea unless you are sure you won’t want to return the item. If you must, at least keep a photocopy of the receipt. Even better, ask the cashier for a duplicate receipt if you know you have bought an item with a rebate.
• Look For A Toll-Free Number: Better companies have an 800 number you can use to inquire if you don’t receive your rebate in the designated delivery timeframe. Keep a record of this number and use it if the rebate doesn’t arrive on time. Avoid rebates that have no number you can call to inquire.
• Keep Records: For each rebate, keep a record of the item purchased, the date purchased, the store, the amount of the rebate, how long the rebate is supposed to take for delivery (and thus the expected due date) and the 800 number to call if it doesn’t show up. Sure, this is a bit more work, but it will help you ensure that you don’t let any rebates “slip through the cracks”, and will also let you see which companies you’ve had good or bad luck with in the past. I use a simple spreadsheet.
• Avoid Bad Companies: Most companies are honest (if a bit slow) about their rebates; a few bad apples are notorious for not honoring them. Use the research resources to investigate if the company you are considering has a good track record.
• Count The Cost Of Your Time: If a small item has a $1 rebate, and it takes you 15 minutes to fill out the form, photocopy a receipt, get an envelope, address it, stamp it and label it, you have valued your time at $4 per hour. If the rebate is $20, it’s a bit different of course!

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