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The Real Problem with Rebates

The Real Problem with Rebates

By Betsy Spethmann

Jan 11, 2006 6:10 AM

Rebate programs don't need new legislation; they need tougher enforcement of current laws, and better education for marketers and retailers, industry experts say.

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Promotion professionals criticized recommendations made last week by Sen. Charles Schumer (D, NY) urging the Federal Trade Commission to investigate and standardize rebate practices (Xtra, Jan. 4).

The FTC already regulates rebates under the Mail Order Merchandise Rule (Part 435), which requires marketers to deliver checks from mail-in rebates in the time frame specified in the offer, or 30 days if no time frame is given. The FTC has pledged to monitor this issue for compliance more closely in 2006.

"Here's the rub: Most marketers don't know when they are in violation of FTC regulations. And the FTC doesn't care whether violations are intentional or inadvertent," said rebate consultant Hal Stinchfield, CEO of Promotional Marketing Insights, Minneapolis, MN.

Most marketers aren't intentionally deceptive, just poor executors, Stinchfield said.

"Marketers in less experienced industries, such as consumer electronics, wireless and office supply retailers, are fielding rebates at an exponentially greater rate with far less experience than CPGs and far greater exposure, because their rebate amounts are so much higher," he said. Marketers need to analyze their rebate procedures to eliminate flaws in offer structures, execution and communication.

"Consumer complaints are only a by-product of improper design or execution, not fraud," Stinchfield said. "It is clearly an education issue on rebate management and compliance with existing regulations."

"The vast majority of offers are done honestly, legitimately and without incident of consumer confusion or dissatisfaction," concurred PMA President Claire Rosenzweig. "It's all about education, not regulation. Now that the promotion industry has recovered the last few years and money has shifted to the promotion arena, more [marketing] people are working in that area, so there's more need for education."

Rebate use is up, partly because retailers pressure manufacturers to field them, but education hasn't kept pace, Stinchfield added. About 400 million rebate checks are mailed out each year, worth about $6 billion, Stinchfield estimates (based on marketer spending). There are about 10,000 rebate offers fielded each year, with circulation (especially via retailer circulars) in the billions.

A 2004 survey of PMA members set that figure much lower, estimating total rebate value at $487 million for the year. The survey, conducted by PMA and the Moore School of Business at the University of South Carolina, also found that bigger rebates boost sales and redemption rates.

Stinchfield argues that two of Schumer's suggestions—to clearly mark envelopes carrying rebate checks, and to allow photocopies of receipts to verify purchase—would increase fraud. Current industry practice dictates that checks, especially high-value ones, use discreet envelopes to deter mail theft. And allowing photocopies of receipts would have consumers "sending in multiple requests left and right," overwhelming fulfillment houses' security checks and requiring new fraud-prevention codes, he said.

Rosenzweig agreed. "Duplicates of receipts would open a floodgate for potential fraud," he said.

Stinchfield defends marketers' right to request consumers' brand and feature preferences on rebate forms, but said marketers need to make clear that such data is optional. And he agreed with Schumer that giving consumers a toll-free number to check the status of a rebate claim would improve customer service, despite being more expensive than a Web site to track claims.

The FTC won't publicly comment on Schumer's recommendations, and won't say whether it has responded privately to Schumer's Jan. 2 letter.

Lee Peeler, FTC deputy director for the bureau of consumer protection, said last fall that the commission would tighten up enforcement this year:

"Our complaint data indicated that failure to pay rebates on time is an area of continuing concern to consumers. Therefore, you can expect to see more FTC enforcement activity in this area in 2006," Peeler said at the PMA Law Conference in December (Dec. 14 Xtra).

Meanwhile, the FTC and the Better Business Bureau continue their "Green Lights and Red Flags" truth-in-advertising workshops that began in 2002.

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