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Mail-In Rebates vs. Instant Rebates

One of the most common misconceptions about mail-in rebates is that they are in some way inherently bad. The reality, however, is that the vast majority of rebates go out on time and without incident.

 

With very few exceptions, consumer complaints and problematic issues are generally not tactic-specific, manufacturer-specific or retailer-specific. They are promotion-specific; every promotion is different and all of them can be improved upon.

 

Two major retailers – one in office supply and one in consumer electronics have announced plans to abandon rebates, presumably due to consumer and regulatory issues. It should be noted however that the only reason why consumer complaints become an issue in the first place is when specific rebate offers are being mismanaged. All complaints emanate from sub-optimal offer structure, offer communication or offer execution.

 

Some companies have embarked on an “instant savings” or “instant rebate” strategy, not recognizing that this may solve one problem only to create another. Here’s an example: let’s say a retailer decides to discontinue rebates and a competitor subsequently reduces their everyday price on the same product.  

 

The first retailer has no option except to match the competitor’s price, which of course results in eroded margins.

 

That puts the first retailer in a chronically reactive mode rather than a proactive mode. Ironically, the reason why rebates became so popular is that they are a more efficient and flexible alternative to constantly trying to keep up with competitive pricing strategies.

 

Here’s the reality: instant savings can be efficient, but they are certainly not effective. They don’t do anything. Featured rebates actually encourage consumers to go into a store and purchase a featured product. Well featured, deeply discounted rebated products can increase sales by up to 500% during the promoted period.  With instant savings, there is absolutely no call to action, no incentive to act – they just exist. And they will never cause a spike in sales.

 

The fact is that it is considerably less costly to fix rebates, than it is to match every competitor’s discounts. If a retailer or manufacturer fixes them, they will still have flexibility in pricing and retain the ability to feature deeply discounted prices.

 

They can also remain more nimble in the event of a competitive threat. After all, in theory, with today’s technology, you could offer a net to zero rebate today and pull it tomorrow.

 

It has already been proven in the U.S. market that abandoning mail-in rebates in favor of instant savings can have a disastrous consequence on a retailer’s margins. Click on the link below for an example:

 

http://www.businessweek.com/bwdaily/dnflash/content/apr2007/db20070423_364297.htm?campaign_id=rss_topStories_nws_01May&link_position=link1

 

In order for rebates to be both efficient and effective, they must be administered and monitored properly whether they are retailer-funded or, perhaps more importantly, manufacturer-funded.

 

Retailers and manufacturers are encouraged to get the appropriate expertise to perform a root cause analysis of the issues in this category before embarking on a margin-eroding strategy. For assistance e-mail hal@promotioninsights.com
 

 

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