What is the logic behind mail in rebate?

Hi All,

Just recently I arrived in US from India.

One of the most surprising thing in US for me is this 'mail in rebate.' You have item worth 50$ and if you send snail mail back to the seller, he will give you as much as 100% of your money back! Now this is something unbelievable. Why would one like to sell their products for free or say half the price. I am pretty much confused about how this mail-in rebate things works in the first place.

Could anyone care to throw some light?
JD
http://www.phpkid.org

JD
Friday, March 12, 2004

1. Some people will forget to mail it in.

2. Some will get lost in the mail.

3. Some companies are dishonest and only pay some people; some will even wait for you to call up and complain before they pay you.

4. Having the use of the money for a short period of time can sometimes make a difference.

Brad Wilson (dotnetguy.techieswithcats.com)
Friday, March 12, 2004

5. Gives stores (Best Buy et al) a good excuse for putting a deceivingly low price in their flyers, while burying the real price in the small print.

3b. Yes, still waiting for my $40 from Epson. Crooks.

Nigel
Friday, March 12, 2004

There are two different kinds of mail-in rebate.  The first is where you buy something and get a portion of the price off, say $20 on a $100 purchase.  The logic is that (a) a company wants to get a product moving when retailers already have it on their shelves and people aren't buying it (at least not fast enough), and (b) the simple fact is that a lot of people buy the item and then never send off for the rebate.  (Sad to say, I've done that a few times myself.)

There are also some companies that simply stall or use various tactics to make it practically impossible to get the rebate in the first place; these days if you really want to get a rebate, you should at a minimum make copies of absolutely everything before you send it off and mark on a calendar (or a PDA) when the rebate should have come by and how to contact them if it hasn't.

The other kind of rebate is a buyer's program where you buy things at grossly inflated prices and then get rebates for the full amounts or close to them.  So far as I know, having just read about it tangentially, this is a scam or at least nearly so and is best avoided.

Kyralessa
Friday, March 12, 2004

Well originally the goal was to preserve the general sense of value a manufacturer would like to install in buyer's mind what an item is while temporarily giving a mutually beneficial illusion of selling at a loss (which is actually a gain, because the manufacturer moves the product in the end, and retailers are kept happy) or giving an highly competitive discount.

Unfortunately it's a real genuine pain in the butt: the uncertainty of whether you'll be one of the lucky ones to not lose their packaging/part number cut outs to the winds of US Postal Service/Canada Post or be lost in a SELECT statement--will generally NOT build consumer loyalty in any customer. If you are a knowledgable marketing geek, please expand on this :-)

Li-fan Chen
Friday, March 12, 2004

They also take the personal information that you put on the rebate form and sell it.

There is a lot of money to be made from tracking your buying habits.

Wayne
Friday, March 12, 2004

In some countries, privacy laws are being put into place because retailers and corporations has been asking for much more personal and private information than is necessary to conduct business for the transaction at hand.

Li-fan Chen
Friday, March 12, 2004

This is Nagle/Holden's take; looks pretty interesting.  A company wants to do 3 things when doing a promotional deal:
- make a price cut benefit the buyer, not the distributor.
- it should be a special offer, so the buyer doesn't think the product's cheap quality.
- they want to direct the deal to first-time buyers, and minimize repeat buyers from taking advantage of it.

Trial offers and coupons can fulfill these objectives to varying degrees of success.  Rebates are for things that cost enough to justify mailing the thing.  One advantage is they get a mailing list of deal-prone customers.  Also supposedly it avoids various coupon frauds.  (I'd think a problem though is most companies just get unsupervised minimum wage guys to send out rebates, because they're not in the business of shipping out money.  So no one trusts these damn things.)

Tayssir John Gabbour
Friday, March 12, 2004

This was always just a hypothesis, and I'd really like anyone that knows to give or take away weight from it.  I always thought that the purpose of mail in rebates was some sort of earnings trick.  Sell the product for $X and now it looks like our total sales and revenue is higher.  Then pay the mail in rebates from a different pot of money.  Kind of a way of artificially making total sales appear higher on paper unless someone actually takes the time to figure out that they aren't.

Elephant
Friday, March 12, 2004

I don't think anyone is considering the real genius behind the rebate and that is (cue horn section)...most companies don't have to pay them.  Folks either don't send them in or send them in incorrectly.  I have PERSONAL experience on this.

Bought a laptop from BestBuy, understood it had a 200 hundred dollar rebate, never sent it in.  Part of it was my extreme sense of procrastination (and the other part appears to be my ever prevelant sense of stupidity).  Bottomline: retailer can advertise a lower price for goods knowing that a certain percentage of the public buying those goods will never redeem their money.  I would venture to say that percentage is quite large.

OneKidney
Friday, March 12, 2004

I wondered the same question, how could a copy sell a item and then have a rebate for 100% of the cost? I was finally able to rationalize after reading "the goal".  Bottom line , in this case a factory had spare "time" that if unused would actually cost them money, so by making something during the spare time, even if they broke even, they were not losing money. Weird huh?
Maybe not the real reason why a rebate can work, but it soothed my mind.

moses whitecotton
Friday, March 12, 2004

Incidentally, if you really want to spend time with rebates...
http://www.consumeraffairs.com/consumerism/rebate_madness01.html

Tayssir John Gabbour
Friday, March 12, 2004

The real winners of mail in rebates is the government, that taxes the total purchase price (which is often double or more the original selling price), retailers that can claim highly bloated sales figures, and the postal service that yields millions of letters to deal with rebates. In the end the consumer is the loser.

Dennis Forbes
Friday, March 12, 2004

Hey John,

That was a great link! Thanks!

Now I know what this rebate hoopla is about and how can I save myself! :)

Regards,
JD

JD
Friday, March 12, 2004

"the uncertainty of whether you'll be one of the lucky ones to not lose their packaging/part number cut outs to the winds of US Postal Service/Canada Post..."


Interestingly, in the last fifteen years or so I haven't had ANYTHING I've sent through US mail get lost...except rebates.

Odd, that.

Kyralessa
Friday, March 12, 2004

Hmmmm... I don't think we've ever missed a rebate (always through OfficeDepot/Max) but I've had other mail get lost (about a .5% failure rate) where customers didn't recieve a product or catalog and called about it.

The real Entrepreneur
Friday, March 12, 2004

The money for funding rebates is usually put up by a marketing group. Instead of spending the money on additional advertising, the funds are escrowed and drawn from to pay rebates. Advertising the rebate in the existing channels is a low-cost affair that does lift the sales of the item, and the ratio of rebates collected to rebates offered is considerably less than 1.0. It works.

In some cases, the rebate is an enticement not to sell the hardware, but to sell the service the hardware enables. A typical "give away the razor but sell the blades" strategy. FOr example, rebates on cable modems are not funded by the manufacturer of the modem, but are instead funded by the cable MSOs who are trying to acquire the customers. The modem manufacturer gets increased sales, and the cable company considers the rebate money part of the cost of acuiring a customer (acquiring a customer is not free!), which they generally make back within X months of billed service.

As for rebate checks being slow to arrive, I can only say from my experience (my employer has run hardware rebates as part of our marketing efforts for our clients) that the firms that do rebate fulfillment are, in general, way, way, way back on the technology curve and none too efficient. This is because they have to keep their services cheap (they are a per-transaction drag on the rebate's margin) and their own margins are pretty slim.

techie for a marketing company
Friday, March 12, 2004

Also, for items where they are free after rebate, it could be that the manufacturer is offering the rebate and the company is selling it as a "loss leader" to get you into the store to buy something else.

i.e. you go in to get the floppies or CD-Rs and you come out with one or more other purchases that you were thinking of.

It's also a cash-flow game.  If you are sitting on some extra cash for 60 days before you pay it back, that is about the same as getting a loan from the people who purchased your product, except it doesn't show up as a loan on the balance sheet and not everybody ends up requesting their money back.

It's good psychology.

It helps them track who is actually buying it because nobody sends in the registration cards.

So there's really a lot of different disparate things that make it a good idea to offer rebates.

Flamebait Sr.
Friday, March 12, 2004

At a previous company of mine we'd only get 30% response on the rebates (around $10 off a $40 software product). So as somebody else pointed out, its value is in be able to advertise a product for $30 but really sell it for $37.

Ron
Friday, March 12, 2004

Rebates do get lost more than other mail...

...because they mail them as checks WITHOUT AN ENVELOPE.

I got my mail in rebate.  It was a $70 check printed on a postcard.  Very ripe for stealing.

Richard P
Friday, March 12, 2004

Considering that 5% of my mail is for the guy with the same address on a different street, i can guess that 5% of my mail is going to him.

(yes, if it looks important i get it to him)

pdq
Friday, March 12, 2004

I tend to agree with the idea that mail in rebates are a marketing gimmick and that vendors probably pay off on relatively few of the low dollar value rebates (say, those $20 or under.) I wonder exactly what the fulfillment rate is in real life.

A mail in rebate allows the store to advertise a net price that many buyers will not have the self discipline to reap.

Costco has the "best" rebate procedure I've EVER seen that appears to be a good faith effort to make sure that the consumer uses it. Costco prints the rebate coupon directly onto your receipt with an address to mail it to. All you have to do is sign it and put it in a stamped, addressed envelope with the UPC code.

Bored Bystander
Friday, March 12, 2004

The last time I bought something with a MIR from FutureShop, it came with three receipts -- the real receipt, the copy of the receipt for the MIR and a form (printed on receipt tape) with a checklist of things to do for the MIR and the address.  Good service on their part.

But, did I ever get around to mailing it in?  Well it was only $10 CDN (think $6-7 US).  It would have taken at least 20 minutes to fill in and a 49 cent stamp to mail off...

End Result -- Future Shop got to advertise something for $95 instead of $105 (breaking the physcological $100 barrier) and still charged $105 for it.  (And of course the gov't got their PST and GST on $105 as well).  I could have recoved ~$9.50 but couldn't be bothered even though Future Shop made it as simple as they could to fill in the form (barring giving me an stamped addressed envelope).

O Canader
Saturday, March 13, 2004

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