I was very close to buying my first Macbook Pro, when the Apple rep told me that I would also get a free printer. Well, it would be free because after I paid $99 for it, I would have to send in the rebate form and then Apple would send me a rebate check for $99. It turns out that they ran out of the printers so I need to go back another day.
It got me thinking. What’s the reason why companies have this whole rebate process? Why not save the customer the hassle? Here are the reasons I came up with:
Some customers forget or neglect to send in the form
The company can record higher revenues on their books (even though the expense will just offset the revenue on the P&L)
The company gets to invest the cash in the time period between the customer paying and the customer cashing the rebate check (which makes little sense today, with interest rates so low)
They can treat it as a gift from the goodness of their hearts, while secure in the knowledge that some percentage of people will just never get around to filling out the rebate.
Besides all 3 reasons, it puts the burden of refunding on the consumer instead of the dealer. I’m not sure why that is so great – wouldn’t a bookkeeping credit from manufacturer or wholesaler to dealer be pretty easy?
I assumed that the customer laziness reason was the big one, but I always viewed Apple as a no-BS company. In fact, their sales rep talked me out of buying the 15" MacBook Pro and told me the 13" model was a much better deal.
Was the 13" actually cheaper? With pcs a 15" model is occasionally cheaper than a 13-14" one.
The biggest reason companies offer rebates is because it will entice people to buy something they otherwise might not, and then many of these people will fail to remember to send in the forms on time, and if they actually do get them in on time there are still ways to avoid paying out because the company can “lose” upcs submitted and otherwise decide that the customer did not jump through hoop x or y in the manner which they demand. If more than 40% of items sold with rebates actually resulted in checks given to customers, I’d be damned surprised.
Summary: lots of customers don’t send in the rebate paperwork, which means the vendor/manufacturer gets to keep a whole lot of money. The redemption rate depends on who you talk to, but it seems to be somewhere around 50%.
The vendor/manufacturer also gets from you a valid mailing address and phone number; you can count on that info being used to their benefit somehow, at the very least for future marketing endeavors.
The vendor/manufacturer also earns interest on the money during the interval between when you pay for the item and when they send you the rebate check (“please allow six to eight weeks…”).
See the Wikipedia page for lots of other reasons that favor the vendor.manufacturer.
The bigger the rebate the less likely it is that the customer won’t claim it.
With an store that isn’t connected directly with the manufacturer, it’s the one way the manufacturer knows that the discount is being given to the customers. The manufacturer might cut the price to the store, but the store can cheat and not discount it as required. Or the store might refuse to discount the item at all (especially if the price cuts into their profits). So by offering a rebate, the storekeeper can still get his usual price, but the customer will buy the item anyway. Ultimately, more units are sold.
i.e.:
Manufacturer: We want you to give away these printers are a promotion.
Store owner: Are you crazy? There goes our profit on the sale. No dice.
Or.
Manufacturer: We want you to offer a rebate for the full price of the printer.
Store owner: Will you be paying the customer directly?
Manufacturer: Sure.
Store owner: sign me up!
Rebates first became very common for computer products for a logical reason. Stuff fell in price and/or became out of date very quickly. If the Whizbang 2000’s wholesale cost falls 40%, the retail price needs to come down. But a lot of the stuff on the shelf is the more expensive version. Paying the retailers back for the extra cost of the old stock and such is just a nightmare.
So the manuf. offers a rebate. All the stock sits at the old price for a while, the stores burn off stuff more quickly, the manuf. is essentially subsidizing this. (Which they should.) Then at some point the price is lowered by the retailers. Etc.
Keeps things friendly between stores and manufs. You don’t want to make stores hesitant to stock a lot of your product if they think they’re going to get stuck eating the costs when prices fall.
Once they noticed that a large % of buyers didn’t file for rebates (or in some cases they could just duck out paying*), then they became an important aspect.
Long ago I’d not get a rebate back. Years past, I get a card telling me of a class action settlement over this. (Which means they didn’t lose my rebate.) And lucky me, I’d get $20 off a purchase of $200 or more at CompUSA or BestBuy. No! I want my $20! Nice scam there folks.
I have always sent in the rebate coupon and I’ve gotten the rebate maybe half the time. Meantime I have paid sales tax (about 15% in Quebec) which is never rebated. Bottom line: if you want to guarantee my not buying your product, offer a rebate.
It’s very much the same thing with the huge push toward gift cards in recent years. They know that a certain percent of them won’t ever be redeemed, so it’s essentially money for nothing as far as the company is concerned.
Same with things like the Arch Card at McDonalds, which is essentially a debit card just for them.