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Ending Rebates Causes Decline in Sales

Hal Stinchfield, CEO and Founder of Promotional Marketing Insights, a Minnesota-based rebate management and sales promotion consultancy, announced today that marketers can expect a 20% decline in sales by ending rebates. The text of the full interview is as follows:


Office Max recently announced they are discontinuing mail-in rebates. Best Buy made a similar announcement last year. Is this the beginning of the end for mail-in rebates?    

Not at all. There are nearly a half billion rebate checks going out every year and all indications are that their usage is not subsiding.


Then why did these two retailers discontinue them?


Rebates are perhaps one of the most misunderstood sales promotion tactics ever deployed. Both of these companies cited consumer complaints as the major reason for abandoning them.


That’s a pretty good reason, isn’t it?


It might be if the only information available was that rebates were causing consumer complaints, which is probably what their management was reacting to.


What’s the reality?


The reality is that rebates themselves don’t cause problems; there is nothing inherent in the tactic that causes consumer complaints.


Then what does cause complaints?


It is universally a result of offer structure, offer communication or offer execution, not the tactic itself.


You’re known as one of the most experienced rebate consultants in the country, what would you have done?


I can’t speak to the specific rationale on the part of either of those retailers, but I can say that a thorough Customer Satisfaction Analysis would have been helpful in assisting them to make a rational and balanced decision.

What is a “Customer Satisfaction Analysis”?


Marketers should recognize that each individual rebate offer is unique, has its own idiosyncrasies, and must be evaluated on a stand alone basis. A Customer Satisfaction Analysis gets to the root causes of consumer complaints. It is a forensic analysis of the metrics resident at the fulfillment and contact centers. These metrics reveal specific offer modifications that will improve efficiency and customer satisfaction. 

Marketers should recognize that each individual rebate offer is unique, has its own idiosyncrasies, and must be evaluated on a stand alone basis. A Customer Satisfaction Analysis gets to the root causes of consumer complaints. It is a forensic analysis of the metrics resident at the fulfillment and contact centers. These metrics reveal specific offer modifications that will improve efficiency and customer satisfaction. 


And those aren’t done today?


In some environments they are, but it is rare. In the retail sector, for instance, these analyses are occasionally performed on retailer-funded rebates and those that have retailer-controlled fulfillment.


Where are they not done?


They are typically not performed on manufacturer-funded rebates.


Why not?


Retailers usually have very little involvement on manufacturer-sponsored offers. It is usually assumed that if the manufacturer is funding them, it’s their issue to manage. Unfortunately, it also becomes a retailer problem. By the time they both learn there is an issue, it's usually too late. Even after it's been discovered, they're not typically prepared to deal with it - customer satisfaction in the rebate space is not a core competency of most manufacturers. Nonetheless, this can cause the retailer to blame rebates in general, rather than identify which specific rebate offers were to blame, why, and whose responsibility is it to fix them.


What’s the risk in stopping rebates altogether?


When a product has been rebated, and then stops using rebates, that product will typically see an annual sales decline of 20% or more. That hurts the retailer, the marketer, and the consumer.


I thought consumers don’t like mail-in rebates; we’ve heard they just want the discount at the register.       

In some cases, that’s true. If you ask consumers which they prefer- a mail-in rebate or an instant discount – they will often express a preference for the discount. We see comments like that in chat rooms and blogs quite frequently.   

So what’s the problem?


It’s the manner in which the question is asked. If you asked the consumer- would you rather have a $50.00 mail-in rebate or $10.00 off at the register- they’d take the rebate every time.


Why only $10?


Manufacturers obviously can’t afford to give their products away for free; the $10 represents what a typical manufacturer could afford as an instant discount equivalent if only twenty-percent of their products were rebated against.


Will other retailers will follow Office Max and Best Buy?


I don’t think so - savvy marketers will continue to refine and enhance their rebate and promotion strategies to increase sales, margin and customer satisfaction. Continuing to rebate also represents an opportunity for gaining a competitive advantage. They will most likely continue to offer well featured rebates but place more emphasis on customer satisfaction and more consumer-friendly execution through the use of alternative rebate vehicles such as paperless rebates and direct deposit.


So rebates will continue?


Yes- most rebates are working very well and most retailers don’t have customer satisfaction issues. This proves that consumer complaints are not tactic-related. Companies like Staples, Circuit City, and CompUSA are doing a better than average job of managing customer satisfaction. However, all marketers would benefit by implementing more frequent Customer Satisfaction Analyses, especially on manufacturer-funded offers.

Promotional Marketing Insights ♦ 2255 Abingdon Way ♦ Orono, MN 55356
Office: 952-404-1915 ♦ Mobile: 612-867-9760 ♦ Fax: 952-404-2211
hal@promotioninsights.com ♦ www.promotioninsights.com
 
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