Price promotion is one of the more popular means of manufacturers today to make their products known. One price-promotion approach is the mail-in rebate.
The mail-in rebate is a form of discount wherein the buyer of the product mails to the manufacturer a rebate card or coupon with the expectation of receiving a portion of his payment back. Unlike instant discounts, the consumer plays a part in availing the discount.
The mail-in rebate is widely used in almost all consumer industries—electronics, cosmetics, and even household basics.
Mail-in rebating, it may seem, is a win-win situation: the manufacturers sell more of their products; the consumers pay a lower price. The Mail-In Rebate Plan: Why mail-in rebate is a hit pricing strategy gives a closer look at the mail-in rebate system, and how it became a favorite—as well as an avoided—pricing strategy.
One essential element that can make a buyer buy a product, or say goodbye to it, is its price. However, prices may also be determined by the buying power of the market around where the products are sold.
According to Picci (2), manufacturers practice price discrimination. This is the process of varying the prices of the products depending on market factors. One such market factor is the willingness or ability of customers to buy the product. Manufacturers can sell their products at a higher price on a location where the buyers are willing to pay the steep price tag.
To avoid loosing the lower-end market, companies devise price promotions that will make the products available to the not-willing-to-pay and the cannot-pay market such as instant discounts, coupons, freebies (buy-one, take-one; get-a-free-tumbler promo), sweepstakes, and the mail-in rebate system.
The mail-in rebate arrangement became popular because it allows manufacturers and retailers to offer their product at a cheaper price without actually pulling the price down.
What is in mail-in rebating that made it all the rage of the marketing industry? How does this influence the buying decisions of consumers? What are the downsides of the structure? How effective, or ineffective, is this system in pricing and selling products?
To better understand the popularity of mail-in rebating, it is proper to start the discussion with the two chief role-players in the system—the consumer and the retailer-manufacturer quadrant.
Less Price, More Buyers
For many buyers, mailing in rebate coupons is a good way to save, and it is worth the effort: just post the rebate card and wait for the manufacturer to send in the check containing the percentage rebated from the purchase. According to Estanislao and Garcia (3), housewives, most especially, are constantly on the look-out for bargains. This spawns from the desire to save money. Mail-in rebate is a way of giving the consumers the coveted discount, albeit in a more complicated way. Still, many avail of mail-in rebates. Some will even consider the rebates when comparing products—a $12 lotion with a $5 rebate coupon will appear to be a better choice over a $10 bottle.
On the contrary, there are consumers who are not satisfied on this scheme. The utmost problem encountered by buyers who send in mail-in rebates is the inefficiency of some companies in giving back the rebates. It may take months for the checks to come, and sometimes the checks do not come at all. Snail-mailing the rebate cards may also pose a problem. The cards may get lost in the mail, and the rebates are gone.
Also, only a fraction of consumers are willing to go through the procedure of getting a rebate. A research by Aberdeen Group, a market research firm, reported that as much as 60% of mail-in rebate cards are not redeemed. The same report states that half of the 40% who indeed mail in the cards have difficulty getting the rebates, if they receive it at all (Santella and Associates, link 1).
Consumers should also be on guard with the fine lines printed on rebate forms. For instance, a contact lens advertisement sported a “Save $20” banner through a rebate and the conditions of the discount were printed in decreasing font sizes, including a prescription requirement.
Customers may sometimes be told that they do not qualify for the rebate due to technicalities in redemption. Rebates normally have requirements that customers should meet for them to qualify and receive part of their money back. Condition of the tape receipts (damaged, fraudulent), fully accomplishing the rebate form, ticking a tiny unnoticeable box, absence or error in the Universal Product Code (UPC) printed on the product, and extreme similarity of the form with other mailed-in forms are some of the grounds for a company to not honor the rebate.
There may also be cases when a rebate is honored, but the check does not arrive. This may chiefly be any of two things. First, the manufacturer, or the hired fulfillment house which processes the rebate forms and computes the rebate cost, was not able to process the rebate money for some reason. That, or the rebate promotion is fake and the company is mainly using the promo to lure buyers.
In these cases, customers should call the manufacturer concerned for assistance. Consumers who feel deceived may also seek the help of consumer protection groups and concerned government agencies in their areas.
The Merchant of Bonus
Enterprises will always have pricing problems to solve. Marking a product with a steep price tag will repel the price-sensitive buyers; pricing a product too low and the company looses money. This ushered in mail-in rebating. In a study conducted by the Incentive Federation, about seven out of 10 companies surveyed use cash awards as an incentive to their consumers (Santella and Associates link 6).
In his discussion of the economist as an engineer and designer, Picci (4) stated that mail-in rebating is a bad design, though in a good way for retailers and manufacturers. When retailers or manufacturers give an outright, straightforward discount to a product, therefore lowering the price, they loose considerable amount of what could have been for the bottom line. Even the buyers who are willing to pay the full amount will get a rebate. This will affect both production costs and the future price of the product. Mail-in rebates allow products to be sold in the same price, and only the price-sensitive consumers who mail in the coupons will get the price-off.
The real advantage of mail-in rebates is in the manufacturer’s end. According to Chen et al (4), the system allows firms to offer customers a discount in such a way that there is a possibility for these clients to give up on the offer. This is not the case with regular rebates where the consumers are compelled to avail the rebate.
The system also allows firms to sell their goods for two prices without really doing so. The end-buyer is the one who decides which of the two prices to take—if one wants the low-price, he just got to fill out the form and wait, wait, and wait for his money-back to arrive.
According to reports (Santella and Associates link 7), companies spend as much as $500 million dollars yearly paying fraudulent rebates. In the onset of the year, Rebate Fraud Task Force, the merger of Rebate Fraud Initiative and the Postal Inspection Service, has recorded over $100 million-worth cases of rebate fraud from 7,000 individuals. Santella and Associates (link 7) cite three of the most common types of rebate fraud schemes: group submissions, submission of fictitious information, and submission of bogus rebate requirements. To protect themselves, James Santella (Santella and Associates link 7) encourages the manufacturers to be familiar with the tell-tale signs of rebate fraud. The five signs are misspellings or non-existence of the store name in the receipt; addressing checks to P.O. boxes; computer-generated return labels; similar handwriting, envelopes, and stamps; and a postmark that is different from the address on the return label or the rebate form.
Often, rebate fraud activities are organized—planned and capitalized on by scrupulous individuals or groups. In the same way, companies should be well-organized in their mail-in offer policies to protect themselves from deception. Being equipped against name and address duplication is a good start. Companies should invest on machines and software that will help them detect duplicate rebate forms.
Mail-in rebate forms should also have clearly defined policies and the policy should include, in black and white, rules on rebate fraud. Referring to statutes supporting the issue is also an option.
The fulfillment house, which may be hired to process mail-in rebate forms, should also be periodically inspected so that the manufacturer can ensure that they are following the guidelines on qualifying rebate forms (Santella and Associates link 7).
World of Incentives
Mail-in rebating is just one bullet in a long list of consumer incentives aimed at enticing consumers to buy products. When Picci (4) discussed his “bad design” concept in connection to mail-in rebating, he juxtaposed with it the “good design”—the instant rebate.
Here, companies can just subtract the rebate cost outright during purchase and mark the product as discounted. The price-cut will apply to everybody, even to those who will buy the product in its full price and will not care about mail-in rebates. This, according to Picci (4), will lead to the collapse of price discrimination. The structure is good for buyers, but not for manufacturers.
Other promotion alternatives are discount coupons and non-cash incentives. Coupons may be printed in magazines or newspapers and be redeemed upon product purchase. Some companies also insert the coupons inside their products so it can be redeemed with a second purchase. Non-cash incentives such as freebies and buy one-take one offers are some ways to reward the consumers. Many consumers buy products lined in this promotion because it gives the impression of buying two products or services for a price of one.
Ethical Issues on Mail-In Rebates
With mail-in rebates from less than a dollar to as high as $100, many “customers” are tempted to take the refunds seriously, which results in organized rebate frauds.
Mail-in rebates require companies to set part of its earnings for refunds, money which otherwise goes to the bottom line. It is designed so that manufacturers can advertise the product at a lower cost without bringing the cost down, and so that buyers who are not willing to pay the high prices can be reached. Every account of fraud means millions of losses to companies, and the more losses the company incurs, the higher fixed costs to cover, and the more expensive the products will get.
The right price is not necessarily the fair price. This is the case for mail-in rebates, which prices similar products differently and leaving the price-slash decision to the consumers; thus, the pricing is not fair. But the system is not all bad. In fact, mail-in rebates are beneficial for those thrifty customers who really avail their refunds. The scheme also helps standardize the competitive pricing of goods. The real issue is issuing deceiving rebate promotions, such as introducing a rebate promo and not refunding the money to consumers who avail it—a practice that, in the long run, will turn customers off not only by availing mail-in rebates but from purchasing products from companies who issue bogus rebate schemes too.
Where Success and Failure Lies
Mail-in rebates promote products with the perception of a lower price for consumers, and when the demand goes up, the prices go up too—but with mail-in rebates, consumers are given the message that it is okay if prices go up: you can get some of your money back anyway. The diagram below illustrates the flow of supply and demand with mail-in rebates:
Mail-In Rebate System
When a firm utilizes the mail-in rebate system, the demand goes up and the prices go up. The consumers may stick with the product, even if the price increases, because of the mail-in rebate option, to the company’s advantage. The demand may also go down if the price goes up. The scenario is entirely dependent on the weather of the market.
On the other hand, the success of the mail-in rebate as a promotion for goods will drive the supply down, as the demands soar. The low supply will also eventually lead to a price increase which, again, may steer the demand up or down depending on the market weather. Whichever way, mail-in rebating is a successful pricing strategy as it is a sure attempt to increase the demand while increasing the price as well as supplies inevitably go down..
The mail-in rebate system is an effective price strategy. On a consumer’s point of view, a rebate is a big help to cover the high costs of decent living required today. For manufacturers, it is hitting two birds with one stone: the buyers who pay the full price, and those who avail the rebate. In whichever perspective, rebates are beneficial if the consumers will follow the legalities of refunding and not deceiving companies for hope of bigger returns and if the manufacturers keep their promises of rebates to consumers and systematize and expedite the refund system. In the end, it is all about respect.
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