A rebate is an amount paid by way of reduction, return, or refund on what has already been paid or contributed. It is a type of sales promotion

Sales promotion

Sales promotion is one of the four aspects of promotional mix. Media and non-media marketing communication are employed for a pre-determined, limited time to increase consumer demand, stimulate market demand or improve product availability...

 marketers

Marketing

Marketing is the process used to determine what products or services may be of interest to customers, and the strategy to use in sales, communications and business development. It generates the strategy that underlies sales techniques, business communication, and business developments...

 use primarily as incentive

Incentive

In economics and sociology, an incentive is any factor that enables or motivates a particular course of action, or counts as a reason for preferring one choice to the alternatives. It is an expectation that encourages people to behave in a certain way...

s or supplement

Supplement

Supplement may refer to:* Dietary supplement* Bodybuilding supplement* Supplement, one of a pair of supplementary angles, considered relative to the other* Supplement * A role-playing or tabletop game supplement, see expansion pack...

s to product sales. The mail-in rebate (MIR) is the most common. A MIR entitles the buyer to mail in a coupon

Coupon

In marketing, a coupon is a ticket or document that can be exchanged for a financial discount or rebate when purchasing a product. Customarily, coupons are issued by manufacturers of consumer packaged goods or by retailers, to be used in retail stores as a part of sales promotions...

, a receipt

Receipt

A receipt is a written acknowledgment that a specified article or sum of money has been received as an exchange for goods or services. The receipt is evidence of purchase of the property or service obtained in the exchange.-Printed:...

 and barcode

Barcode

A barcode is an optical machine-readable representation of data, which shows data about the object to which it attaches. Originally barcodes represented data by varying the widths and spacings of parallel lines, and may be referred to as linear or 1 dimensional . Later they evolved into rectangles,...

 in order to receive a check for a particular amount, depending on the particular product, time, and often place of purchase. Rebates are offered by either the retailer or the manufacturer of the chosen product. Large stores often work in conjunction with manufacturers, usually requiring two or even three separate rebates for each item. Manufacturer rebates are sometimes valid only at a single store. Rebate forms and special receipts are sometimes printed by the cash register

Cash register

A cash register or till is a mechanical or electronic device for calculating and recording sales transactions, and an attached cash drawer for storing cash...

 at time of purchase on a separate receipt or available online for download. In some cases, the rebate may be available immediately, in which case it is referred to as an instant rebate

Instant rebate

An instant rebate or sometimes instant savings, is a marketing strategy or gimmick in which a product is either advertised at a specific price, or at a discounted price, where the discount is applied at the time of purchase. For example, the store may advertise a widget for $9.99, but with a $5...

. Some rebate programs offer several payout options to consumers, including a paper check, a prepaid card that can be spent immediately without a trip to the bank or even PayPal payout.

Uses

Rebates are heavily used for advertised sales in retail stores in the United States

United States

The United States of America is a federal constitutional republic comprising fifty states and a federal district...

, such as Best Buy

Best Buy

Best Buy Co., Inc. is an American specialty retailer of consumer electronics in the United States, accounting for 19% of the market. It also operates in Mexico, Canada & China. The company's subsidiaries include Geek Squad, CinemaNow, Magnolia Audio Video, Pacific Sales, and, in Canada operates...

 and Staples

Staples, Inc.

Staples Inc. is a large office supply chain store, with over 2,000 stores worldwide in 26 countries. Based in Framingham, Massachusetts, United States, the company has retail stores, serving customers under its original name in Austria, Brazil, China, France, Germany, India, Italy, Norway,...

. However, Best Buy, in April 2005, announced that they would be eliminating all mail-in-rebates. Personal computer

Personal computer

A personal computer is any general-purpose computer whose size, capabilities, and original sales price make it useful for individuals, and which is intended to be operated directly by an end-user with no intervening computer operator...

 components and electronics

Electronics

Electronics is the branch of science, engineering and technology that deals with electrical circuits involving active electrical components such as vacuum tubes, transistors, diodes and integrated circuits, and associated passive interconnection technologies...

 seem to have a large portion of rebate sales. For example, an item might be advertised as "$39 after rebate" with the item costing $79 OTD (out-the-door) with a $40 rebate that the customer would need to redeem. The turnaround time

Logistics

Logistics is the management of the flow of goods between the point of origin and the point of destination in order to meet the requirements of customers or corporations. Logistics involves the integration of information, transportation, inventory, warehousing, material handling, and packaging, and...

 is generally four to eight weeks, though some rebates note a period of eight to twelve weeks. In the UK

United Kingdom

The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...

 rebates are not common, with manufacturers and retailers preferring to give discounts at the point of sale rather than requiring mail-in or coupons.

Retailer Staples

Staples, Inc.

Staples Inc. is a large office supply chain store, with over 2,000 stores worldwide in 26 countries. Based in Framingham, Massachusetts, United States, the company has retail stores, serving customers under its original name in Austria, Brazil, China, France, Germany, India, Italy, Norway,...

 offers the popular Easy Rebates program, which enables customers to use paperless submission for rebates, offers a choice of rewards and quick payment. Rebate provider Parago

Parago

Parago, Inc. is a rewards-based incentives company that designs, implements and manages programs for Fortune 500 companies. Parago is based in Texas....

 is credited with redesigning and managing Easy Rebates. After a decade of working together, Staples extended its contract with Parago for another five years in 2010.

Rebate clearinghouses

Most rebates are handled under contract

Contract

A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...

 by rebate clearinghouses that specialize in processing rebates and contest applications. The source of their fee

Fee

A fee is the price one pays as remuneration for services. Fees usually allow for overhead, wages, costs, and markup.Traditionally, professionals in Great Britain received a fee in contradistinction to a payment, salary, or wage, and would often use guineas rather than pounds as units of account...

s is not readily discernible with conflicting reports from different sides. Roger D. Andersen, former CEO of Young America

Young America Corporation

Young America Corporation is a major rebating center and clearinghouse with locations in the United States, Canada, Mexico, Argentina and India. The corporation handles mail-in and paperless rebates, gift cards and pre-paid cards, sweepstakes, targeted sampling, premiums and merchandising, CRM,...

, a rebate clearinghouse claims that "Young America receives the same fees whether a submission is valid or invalid," giving them no incentive to unfairly invalidate customer rebates. Young America is currently under investigation by the state of Massachusetts for keeping unclaimed rebate checks. Frank Giordano, founder of TCA Fulfillment, claims "We get paid for every redemption request we enter in the system. If we don't put it in the system, we don't get paid.". TCA is also notable for a "Rebate Redemption Guide" that was sent to prospective clients touting the low redemption rates that they would have with TCA as their rebate fulfillment center, promising 20% less than their competitors.

Regulations and laws

In the United States

United States

The United States of America is a federal constitutional republic comprising fifty states and a federal district...

, Connecticut

Connecticut

Connecticut is a state in the New England region of the northeastern United States. It is bordered by Rhode Island to the east, Massachusetts to the north, and the state of New York to the west and the south .Connecticut is named for the Connecticut River, the major U.S. river that approximately...

 state regulations section 42-110b-19(e) require retailers who advertise the net price of an item after rebate to pay consumers the amount of that rebate at time of purchase. Rhode Island

Rhode Island

The state of Rhode Island and Providence Plantations, more commonly referred to as Rhode Island , is a state in the New England region of the United States. It is the smallest U.S. state by area...

 has similar legislation (Gen. Laws 6-13.1-1). Otherwise, the after-rebate price cannot be advertised as the final price to be paid by the consumer. For example, retailers in Connecticut can advertise only "$40 with a $40 rebate," not "Free After Rebate," unless they give the rebate at the time of purchase,

Rationale

Rebates have become very popular in retail sales within the United States. Retailers and manufacturers have many reasons to offer them:

• The information given in the rebate form, such as name, address, method of payment, can be used for data mining
  Data mining
  Data mining , a relatively young and interdisciplinary field of computer science is the process of discovering new patterns from large data sets involving methods at the intersection of artificial intelligence, machine learning, statistics and database systems...
  
   studies of consumer behavior.
• The information can be used as evidence of a pre-existing business relationship for marketing purposes, such as do not call lists.
• Customers tend to notice price increases and react negatively. Rebates offer retailers the benefit of giving customers a temporary discount on an item, to stimulate sales, while allowing it to maintain its current price point. This method avoids the negative backlash that could be perceived with a price being lowered and then raised later.
• Rebates also allow companies to "price protect" certain product lines by being selective in which models or brands to be discounted. This allows retailers and manufacturers to move some product at lower cost while maintaining prices of successful models. A straight price reduction on some models would have a domino effect on all products in a line.
• During the turnaround time, the company can earn interest
  Interest
  Interest is a fee paid by a borrower of assets to the owner as a form of compensation for the use of the assets. It is most commonly the price paid for the use of borrowed money, or money earned by deposited funds....
  
   on the money.
• If the turnaround time crosses into the next fiscal year or quarter, a rebate offer can inflate sales in the current period, and not have to be accounted for until the next period and then it could be attributed as a cost reducing sales or expense for the next period giving companies an accounting advantage with their Wall Street
  Wall Street
  Wall Street refers to the financial district of New York City, named after and centered on the eight-block-long street running from Broadway to South Street on the East River in Lower Manhattan. Over time, the term has become a metonym for the financial markets of the United States as a whole, or...
  
   projections.
• Extended warranties
  Warranty
  In business and legal transactions, a warranty is an assurance by one party to the other party that specific facts or conditions are true or will happen; the other party is permitted to rely on that assurance and seek some type of remedy if it is not true or followed.In real estate transactions, a...
  
   and other price-dependent factors always use the initial purchase price, not the price after the rebate. This is normally because if the company has to refund the customer the "replacement value", it would be the before rebate "in-store" price.
• Once the UPC
  Universal Product Code
  The Universal Product Code is a barcode symbology , that is widely used in North America, and in countries including the UK, Australia, and New Zealand for tracking trade items in stores. Its most common form, the UPC-A, consists of 12 numerical digits, which are uniquely assigned to each trade item...
  
   has been removed from the box, retailers can refuse to accept a return
  Return
  -In business, economics, and finance:* Rate of return, the financial term for the profit or loss derived from an investment* Tax return , various meanings relating to taxation...
  
   of the item.
• Not all buyers will meet the criteria to receive the rebate. Companies often require the original UPC barcode, receipt, and additional information, which a buyer may forget to include when redeeming the rebate. Companies almost always add other caveat
  Caveat
  Caveat , the third-person singular present subjunctive of the Latin cavere, means "warning" ; it can be shorthand for Latin phrases such as:...
  
  s to the rebate as well, such as the redemption having to be postmark
  Postmark
  thumb|USS TexasA postmark is a postal marking made on a letter, package, postcard or the like indicating the date and time that the item was delivered into the care of the postal service...
  
  ed by a certain date. It works in the company's favor if buyers do not act quickly to redeem. However, a University of Florida
  University of Florida
  The University of Florida is an American public land-grant, sea-grant, and space-grant research university located on a campus in Gainesville, Florida. The university traces its historical origins to 1853, and has operated continuously on its present Gainesville campus since September 1906...
  
   study notes that shorter redemption periods actually increase the redemption rate in the consumer's favor because it gives them less time for procrastination
  Procrastination
  In psychology, procrastination refers to the act of replacing high-priority actions with tasks of low-priority, and thus putting off important tasks to a later time...
  
   to set in.
• New companies that want to make a break into a market can offer substantial rebate savings on their new product as a means of capturing a customer's attention. Zeus Kerravala, vice president at the Yankee Group, has said "For companies that haven't been in a particular market, the rebate that essentially refunds the customer's money is a great way to get people to pay attention to them. This is especially true in consumer electronics, where brand name does matter. It's a good way to get customers to take a chance on a new brand."

Benefits and costs for consumers

Rebates may offer customers lower pricing. Deal hunter sites frequently tout the benefits of rebates in making technology affordable: "Rebates are the meat and potatoes of the ultimate tech deal, no matter what you are buying… They are paying you money to buy their stuff. All you have to do is take it."

According to 2011 research from Parago

Parago

Parago, Inc. is a rewards-based incentives company that designs, implements and manages programs for Fortune 500 companies. Parago is based in Texas....

, a leading consumer incentives and rebate provider, 47% of consumers submitted a rebate in the past 12 months, whereas similar research conducted in 2009 showed that only 37 percent of consumers had submitted a rebate in the prior year.

Industry advisers note that if mail-in rebates go away, they will not be replaced by "instant rebates" of the same value amount because of the loss of the tangible benefits listed above (fiscal accounting, price protection, etc.) Steve Baker, vice president of industry analysis for NPD Group, comments that "It's a case of be careful of what you ask for. You may see some great deals go away."

Rebates take a certain amount of time and effort from the consumer - figuring out the rules, filling out the forms, preparing and dropping off the mailing, cashing in the cheque, keeping track of the paperwork while this is being done. Thus, a rebate can be thought of as being paid to do this paperwork and provide one's personal data to the company. Chances of rebate mailing being lost or failing some criteria may further reduce the expected return on this effort.

If the total estimated time to be spent by the consumer for the whole rebate submission, multiplied by consumer's hourly salary rate (or even the minimum wage), is comparable to or above the rebate amount, then it can be seen as not worth the time.

Consumers who are aware of this, and who value their time, effort and opportunity costs above the value of the rebate may choose to intentionally ignore a non-instant rebate that requires such procedures and assume the out-the-door price when considering the purchase.

On the other hand, if the consumer does not see it this way, or their income and budget are extremely limited or non-existent, and/or they are more concerned with the price than their time for any reason, the rebate may be seen as a reasonable deal.

Consumers enjoy the convenience of receiving rebates on prepaid cards, and 95% of consumers say they would definitely or maybe choose a prepaid rebate card over other options like checks.

Redemption rate inconsistencies

It is difficult to get an account of redemption rates from most rebate companies, partly due to a reluctance on the part of rebate fulfillment houses to release confidential business information. Among different sources, radically different numbers on both ends of the spectrum can be cited. Part of the reason is that most "redemption rates" do not distinguish whether they are calculated as part of total sales or incremental sales.

• PMA, a marketing firm, estimated that in 2005 $486.5 million worth of rebates were redeemed. The redemption rates averaged 21.1% when calculated as a percentage of total sales, and 67.6% when calculated as a percentage of incremental sales. They go on to note “These statistics reveal that redemption rates calculated as a percentage of total sales can be misleading when diluted by non-incremental sales, consequently making redemption rates appear lower than they truly are.”
• Not all buyers remember to mail the coupons, a phenomenon known in the industry as breakage, or the shoebox effect. Though it can be used interchangeably with breakage, slippage is the phenomenon when a consumer has their rebate fulfilled but they lose or forget to cash the check. Some rebate companies could tout a higher "redemption rate" including the breakage, while not calculating the potential slippage of uncashed checks.

Some redemption estimates

• BusinessWeek
  BusinessWeek
  Bloomberg Businessweek, commonly and formerly known as BusinessWeek, is a weekly business magazine published by Bloomberg L.P. It is currently headquartered in New York City.- History :...
  
  recently estimated a return rate of 60 percent. Some estimates have been as low as 2%. For example, nearly half of the 100,000 new TiVo
  TiVo
  TiVo is a digital video recorder developed and marketed by TiVo, Inc. and introduced in 1999. TiVo provides an on-screen guide of scheduled broadcast programming television programs, whose features include "Season Pass" schedules which record every new episode of a series, and "WishList"...
  
   subscribers in 2005 did not redeem their $100 rebates, allowing the company to keep $5,000,000 in additional profit
  Profit (accounting)
  In accounting, profit can be considered to be the difference between the purchase price and the costs of bringing to market whatever it is that is accounted as an enterprise in terms of the component costs of delivered goods and/or services and any operating or other expenses.-Definition:There are...
  
  .
• PC Data in the Reston, VA estimates between "10 and 30 percent".
• PlusNetMarketing in Wilmington, DE quotes 80%
• A representative in 2005 from The Marco Corporation stated“In some cases, we do have redemption programs that go as high as forty to fifty per cent, but generally it’s about one to five per cent”. In the same article, John Challinor, advertising manager for Sony Canada remarks that “The industry average is less than ten percent....and it can be as low as one percent.
• NPD Group, a marketing firm, estimates 50% to 70%

General complaints

At some big box stores

Big-box store

A big-box store is a physically large retail establishment, usually part of a chain. The term sometimes also refers, by extension, to the company that operates the store...

, personal computers are regularly sold with sizable rebates attached, making the advertised price more attractive to buyers. It is common, though, for these rebates to be conditional upon signing a long term contract with a particular ISP, to which some customers may object. Hardware manufacturers have come under fire, also. Dell

Dell

Dell, Inc. is an American multinational information technology corporation based in 1 Dell Way, Round Rock, Texas, United States, that develops, sells and supports computers and related products and services. Bearing the name of its founder, Michael Dell, the company is one of the largest...

, for one, has been the subject of rebate complaints involving misprinted receipts, potentially confusing expiration dates, and service representatives who are slow to react.

Rebate issues began to clog Dell's customer service forums, leading the company to shut down that portion of the website, and refocus its energy on new online customer care solutions. CompUSA

CompUSA

CompUSA is a retailer and reseller of consumer electronics, technology products and computer services. Its headquarters are in Miami, Florida.Until its reorganization, CompUSA, Inc. was a wholly owned subsidiary of U.S. Commercial Corp S.A.B...

 used rebates regularly until it started closing its remaining stores in December 2007.

Cell phone service companies, including major players like T-Mobile

T-Mobile

T-Mobile International AG is a German-based holding company for Deutsche Telekom AG's various mobile communications subsidiaries outside Germany. Based in Bonn, Germany, its subsidiaries operate GSM and UMTS-based cellular networks in Europe, the United States, Puerto Rico and the US Virgin Islands...

, as well as third-party retailers like Radio Shack

Radio shack

Radio shack is a slang term for a room or structure for housing radio equipment.-History:In the early days of radio, equipment was experimental and home-built. The first radio transmitters used a noisy spark to generate radio waves and were often housed in a garage or shed. When radio was first...

, Wirefly

InPhonic

InPhonic Inc was an American company which sold wireless services and devices online, both through its own electronic commerce sites and through private labeled websites it created and managed for online retailers. InPhonic was founded by David A. Steinberg who resigned in 2007 due to poor debt...

 and others have received growing attention due to complex rebate redemption rules. Both carriers and retailers make customers submit rebate claims during a 30-day window, often 6 months after cell phone activation. Some authorized dealers have responded by trying to make rebate requirements more transparent, explaining that the carrier will withdraw payment from them if a customer quits service before the end of the contract.

In 2009, Florida State Attorney General Bill McCollum filed suit against Tiger Direct

Tiger Direct

Tiger Direct is a direct online and catalog retailer of computers and consumer electronics. It is a Systemax subsidiary. Its headquarters are in Fountainbleau, Florida.-Overview:...

, OnRebate, and their parent company Systemax, charging the companies with failing to provide rebates to customers.

Rebates as a form of price discrimination

A common complaint against rebates is the claim that rebates can be used as a form of "price discrimination

Price discrimination

Price discrimination or price differentiation exists when sales of identical goods or services are transacted at different prices from the same provider...

" against members of lower classes who are less likely to redeem rebates than a more educated middle class. Sridhar Moorthy, marketing professor at the University of Toronto also advocates a “price discrimination” theory between “people who are price-sensitive and people who are not price-sensitive.”. A different view, as taken by the BusinessWeek article, is that rebates can be viewed as a “tax on the disorganized” that is paid by those who do not submit their rebates as opposed to those who do.

Recent trends

Some retailers have taken a step forward with offering consumers new ways to submit their rebates easily over the Internet, completely or partially removing any mail-in requirements. Staples, Sears, Tiger Direct and Rite Aid

Rite Aid

Rite Aid is a drugstore chain in the United States and a Fortune 500 company headquartered in East Pennsboro Township, Pennsylvania, near Camp Hill. Rite Aid is the largest drugstore chain on the East Coast and the third largest drugstore chain in the U.S....

 currently offer an online submission option for all or some of the rebates they offer. These special rebates are usually identified as such and have instructions for full or partial online submissions. This is touted as a more accurate processing of the rebate, reducing the potential for human or mechanical error and in many cases eliminating the postage costs associated with traditional mail-in rebates, although some require the UPC or Proof Of Purchase to be mailed in. Most of these retailers still let consumers submit rebates by mail.

In 2006 OfficeMax

OfficeMax

OfficeMax , is an American office supplies retailer that was founded in 1988 and is headquartered in Naperville, Illinois.-History:On April 1, 1988, OfficeMax was founded in Cleveland, Ohio, by Bob Hurwitz and Michael Feuer. Hurwitz served as executive chairman and chief executive officer and Feuer...

 stores announced that they were eliminating mail-in rebates from their sales promotion in favor of instant rebates for their sale prices. The decision came after a year of working with rebate vendors and manufacturers to improve the rebate process and receiving "overwhelmingly negative feedback" from their customers about their rebate program.

Instead of checks, prepaid gift cards are being given by many stores. Merchants like these cards, as they cannot be redeemed for cash and must be spent. However, some states require that retailers redeem the card value for cash if it falls below a certain level, such as $5 in Washington state. Many sales people are not aware of this and will deny giving the refund. Consumers must be careful of expiration dates and read the fine print.

According to research from Parago

Parago

Parago, Inc. is a rewards-based incentives company that designs, implements and manages programs for Fortune 500 companies. Parago is based in Texas....

, a leading consumer incentives and rebate provider, the typical American household that takes advantage of consumer rebates saves an average of $150 annually. More than $8 billion dollars were issued back to American households last year alone by rebate programs.

External links

• FatWallet Rebate Info Thread Extensive listing of Rebate Companies, contact info and complaint avenues