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Why are rebates offered?
Home » Advertising & Marketing » Rebates » Why are rebates offered?Posted by Your Guide on October 6, 2006 2:40 PM
Rebates have become very popular in retail sales. There are many good reasons for retailers and manufacturers to offer them.
The biggest reason is that a large number of buyers forget to mail their stuff in. This is known as "breakage." Return rate varies greatly depending on the amount of the rebate, the store and the type of product, but BusinessWeek recently estimated just 60% of mail-in rebates are claimed. Some estimates have been as low as 2%. For example, nearly half of the 100,000 new TiVo subscribers in 2005 failed to receive their $100 in rebates, allowing the company to keep $5,000,000 in additional profit entitled to the customers rather than the company.
Another reason is that many buyers fail to meet the criteria of their rebate; usually this is because they don't follow the instructions, such as sending the original UPC barcode.
Some other smaller reasons are:
• During the turnaround time, the company earns interest on the money.
• If turnaround time crosses into the next fiscal year or quarter, a rebate offer can be used to inflate sales in the current period, and not have to be accounted for until the next period, at the cost reducing sales or increasing costs at the next period.
• Extended warranties and other price-dependent factors always use the initial purchase price, not the price after the rebate.
• If the rebate is from the retailer, the manufacturer has "free" advertising.
• Rebates can also be used to collect consumer information.
• Once the original UPC has been removed from the box, retailers will refuse to accept a return of the item.
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