How do they make money? (rebates)

On sunday I bought a cheap “web camera” at Office Max It was advertised as free. It was $30, but had an “in store rebate” of $20 ($10 out of my pocket) it also had a $10 mail in rebate (total=no money out of my pocket. So, help me with the math here. Someone here isn’t making any money. I have a new camera and didn’t pay anything for it. How are companies able to do this?

Sounds like http://www.amazon.com/exec/obidos/tg/stores/detail/-/wireless/B00006LEN1/ref=w_zr_mb_blah1_tl/103-9077624-3312601 where Amazon.com offers a $250 rebate while T-Mobile offers a $50 one… I guess they make up for it in the plan, but a full color phone for free is impressive.

They lose money on each sale, but make it up in volume.

I also guess they bank on the idea that many people don’t go through the hassle of mail-in rebates… Wish I could edit posts…

A lot of people forget to turn in the rebates and some screw up the rebate form requirements and get the rebate declined.
I always staple or tape the UPC labels and other stuff to the form. If a manuf. is sitting on a ton of soon to be obsolete merch. taking their chances with rebates is better than the pennies on the dollar a reseller will give them.

They also mail the checks “bulk rate”, and make it look like junk mail. Since 6-8 weeks have gone by they hope you’ve sort of forgotten about it and just pitch it as more trash. Also the post office doesn’t forward junk mail so if you’ve moved you’re out of luck.

And also, don’t forget that it’s a marketing ploy. If you come into the store for that item, chances are you’ll buy something else, since you have “saved” money on that rebate item, and that’s how they get ya.

They may be losing money, but it all comes out of the advertising and marketing budget.

Actually, it’s a mechanism through which companies practice price discrimination.

In other words, they get the people who’d buy the product at full price, and they also get some more people who wouldn’t buy it at full price, but will buy it for some lower price through rebates and coupons.

So they get some percentage of sales at full price, and some more at a discounted price, and the total revenue from both is higher than selling at either price by itself, or at least that’s the idea.

Thanks for the responses, folks.

I can tell you they didn’t make money on me. I only bought the camera and nothing else, and I quickly (and correctly) filled out the rebate form and mailed it out with the required UPC, receipt, etc. And I get rebates all the time, neither i, nor my wife will be throwing that check away.
actually, it’s a good thing most people aren’t like me. The companies would stop having deals like this!:wink:

Naw. First, its not free, you have to pay sales tax & postage & copying receipts (I always copy rebates) & stuff takes time…

Anyway, as mentioned before, a certain amount of people don’t mail a rebate in. Also, in order to get your rebate you have to do a form & give exact info so they can write & mail you your check. So guess what? They got some excellent marketing info. The stuff that is sold is usually almost out of date sometimes & so they at least get something (your info) instead of having to throw it out. If the camera cost them $3 to make, then they get your info for $3 & they can sell it (I would hope they don’t), right?

Circuit City has a bunch of stuff that comes up every few months for free. Like a power strip or a bag. They rotate them, you see?

Consumer reporter Clark Howard’s take on rebates.

I once came across a business called CyberRebate, an online store that offered a partial or full rebate on all its products. Its business model was exactly as BrandonR and astro described – it marked up the prices a lot, and wagered that most people wouldn’t file for the rebate properly or at all.

So I figured I’d give it a try. I ordered an item from them. It came; I filed for the rebate; I watched my status on the web site. (The company claimed an 8 to 12 week delay for processing rebates.)

Then a few days before the company was going to send out my rebate check, it filed for bankrupcy. It bet against the consumer, and it lost.

So to answer the question: How did CyberRebate make money? It didn’t. Rebates may be a good marketing technique, but may not be a good primary business strategy.

I always figured they made money of the interest that built up over the 6-12 weeks it took to mail the rebate.

It’s not much, but like the joke says- volume.

Another interesting fact is that the manufacturer isn’t responsible for your rebate at all. Most large rebate programs go to rebate warehouses for processing. There are lots of “lost” rebate forms, and many people don’t follow up if they never see the check. I read an article on rebate warehouses a few years ago, and they’re quite the scam. I’ll search for a link and post it if I find it.

(Always wanted to say this… ahem)

The master speaks:
http://www.straightdope.com/classics/a3_167.html

Also, with rebates, manf sell more stuff, this gives them lots of cash quickly. Then they can use that. Some may never get around to sending out the rebate funds. Right now there seem to be some Cendyne rebates people aren’t getting. Cendyne has to pay the rebate people & then they mail out the funds, but until they get the money, the rebates aren’t sent. Hmmm.