Rebates, widely known as refunds, are a popular tool used by businesses to promote their products and services. Rebates are distinct from coupons and other forms of discounting in that they reimburse a customer for part of the purchase price following, rather than at the time of, the sale. By offering consumers cash back on the purchase price, rebates provide an incentive to buy a particular product.
A relatively new method of promotion, rebating evolved from the marketing technique of offering coupons. They were initially offered by producers of grocery-store goods and subsequently by manufacturers of nonfood items. Currently, businesses making use of rebates are diverse and include the manufacturers of health and beauty aids, household supplies, and small and large appliances, as well as automakers, wine and liquor manufacturers, and segments of the computer industry.
The cash amounts these companies offer their customers is similarly wide-ranging; some rebates of less than a dollar are offered, while other rebates on "big ticket" items such as automobiles have reached several thousand dollars. The size of the rebate offered depends on the base retail price, the nature of the product being promoted, and the number of goods backed up in the production pipeline.
HOW REBATES WORK
The first step in rebating, as outlined by Susan J. Samtur in Cashing in at the Checkout, is for the manufacturer to issue an offer of a rebate to all who purchase its product; typically the offer carries an expiration date of six to eight months. The purchaser then completes a form provided by the manufacturer and mails it—along with any other items the manufacturer may require, such as a cash-register receipt or the Universal Product Code (UPC) snipped from the packaging—to the address specified on the form.
Most commonly, the purchaser sends the rebate form and related "proof of purchase" items not to the manufacturer but to one of several large clearing-houses hired by the manufacturer to handle these transactions—for instance, the Young America Corporation in Minnesota or the Nielson Clearing House in Texas. The clearinghouse then processes the form and sends the purchaser a check in the manufacturer's name, usually within four to eight weeks from the time the purchaser mails in the required information.
Companies use a number of means to get their rebate forms into the hands of customers. Many companies supply a pad of tear-off rebate forms to the stores selling their products; others print the form directly on the packaging or on a tag hanging from the merchandise. To announce the rebate offer and distribute the forms, companies may also place advertisements in newspapers and magazines, utilize home mailers, and/or place ads in the myriad refunders' newsletters developed by consumers to avail themselves of these offers. In addition, companies frequently use television and radio advertisements to publicize their rebate promotions. Finally, there are several Internet sites that direct consumers to rebate offers.
ADVANTAGES AND DISADVANTAGES OF REBATES
Rebates are highly attractive to most consumers, for they provide a partial cash reimbursement for their purchases that is tax-free (the Internal Revenue Service views rebates as a reduction in the price paid for a product, rather than as income). And for manufacturers, rebating provides numerous advantages: it induces prospective customers to try their products; it boosts company sales and visibility; it relieves problems of excess inventory; and it attracts interest from retailers, who often help promote the offer and expand the shelf space allotted to the manufacturer's goods accordingly. Rebate promotions can thus help a company increase its leverage with retailers and develop brand loyalty and repeat business among consumers over the long run. Indeed, a study conducted by United Marketing Services (UMS) found that rebates are an effective means of establishing product awareness with consumers. In addition, the information consumers provide on rebate forms can be used to target future promotions.
As rebates have increased in popularity, however, several common problems have emerged. For example, many companies have experienced problems honoring their rebate offers, largely due to an inability to keep up with demand. In fact, some companies offer rebates with the knowledge that only a small percentage of consumers bother to take advantage of them. "Most … companies are hoping that although rebates will entice consumers to buy their products, most people will never actually get around to dealing with all the rigmarole required to redeem them," Roberta Furger wrote in PC World. These companies fail to anticipate the interest in a particular offer and thus plan their rebate processing poorly, resulting in long delays in sending checks to consumers.
Due to the frequent mix-ups and delays in processing rebate submissions, some consumers now tend to view rebate offers as a sleazy marketing tactic. This means that fewer consumers will base their purchase decisions on the availability of a rebate. Experts note that consumers can increase their chances of receiving rebates due by sending all the documentation requested in the rebate offer; keeping copies of all forms and receipts; checking on the status of overdue rebates with the company; and reporting any problems to the Federal Trade Commission, the Better Business Bureaus, or the state attorneys general. Finally, experts advise consumers to never buy anything just for the rebate.