Manufacturers and retailers around the country enjoy providing rebate opportunities to customers. However, most customers do not share that same enthusiasm regarding filling out documents, gathering the necessary paperwork and receipts, and mailing in the rebate documents to claim up to $100.
Stanley Lomax
Discussion Thread: The Great Rebate Runaround
Manufacturers and retailers around the country enjoy providing rebate opportunities to customers. However, most customers do not share that same enthusiasm regarding filling out documents, gathering the necessary paperwork and receipts, and mailing in the rebate documents to claim up to $100. Hal Stinchfield shared that over 400 million rebates are offered for products annually averaging a face value of $6 billion. Many businesses, drugstores, national chains, and companies that sell technological gear offer rebates on their products. This discussion thread will answer questions regarding rebates.
Case Discussion Questions
Customized Pricing Example
For many organizations and companies, there are benefits to offering rebates instead of decreasing the price of products. One major reason businesses offer rebates on products is because 40% of all rebates offered are never redeemed meaning that the customers paid full price and the business did not have to return any money to the customer. On average, more than $2 billion of extra money is earned for suppliers and retailers because customers did not cash in on their rebates. Multiple reasons such as being too busy to cash in rebates, not feeling it is not worth it, being too lazy, or being forgetful lead to customers missing out on money and businesses being able to keep more money on the product sold.
According to Ajorlou and Jadbabaie (2023), businesses utilize sales-based rebate mechanisms to activate price discrimination for consumers. Retailers and sellers will charge a fixed price for a product at the time of sale that will be contingent on a rebate after the product is sold or at the end of the sales period. In other words, price discrimination is a common scheme of sellers and retailers with the intent to increase profits above standard prices.
Why Offer Rebates vs. Decrease Wholesale Prices
Manufacturers would still prefer to offer rebates and coupons instead of just decreasing the wholesale price. Many businesses want to participate in differential pricing. This allows retailers to separate customers who value time, convenience, and flexibility from customers who will go the extra mile to collect money back in return for purchasing a product (Simchi-Levi et al., 2023). Mail-in rebates can be advertised in magazines, newspapers, online, and in-store options. By adding a hurdle to the buying process, over 40% of customers do not bother to cash in on their rebates. One purpose of mail-in rebates for manufacturers is to influence the demand of customers and incentivize retailers to increase the quantity of products ordered. Both the manufacturer and retailer would benefit from offering rebates because the quantity of products is increased, and the sale of products is increased.
Why Best Buy is Considering Eliminating Rebates
The negative press and customers being upset regarding rebates are pushing Best Buy to phase out the rebate options within 2 years. The negative regulatory scrutiny and lawsuits regarding rebates have forced Best Buy to rethink the hassle of dealing with rebates. In addition, some new legislation was passed requiring businesses to allow at least 30 days for consumers to apply for rates, to process checks by mail within 60 days of the application, and to standardize the forms used to collect needed data from customers. Even though the bill was vetoed, talks about reintroducing the bill are ongoing. Companies such as Best Buy feel that the best solution is to just do away with rebates altogether.
References
Ajorlou, A., & Jadbabaie, A. (2023). Sales-based rebate design. Management Science, 0(0). https://doi.org/10.1287/mnsc.2023.4691Links to an external site.
Simchi-Levi, D., Kaminsky, P. & Simchi-Levi, E. (2023). Designing and managing the supply chain: Concepts, strategies and case studies. McGraw-Hill Education.
Demesha Brimidge
1. Price appraisal techniques are occasionally used by manufacturing organizations to maximize their profits and revenues. Customized pricing is a tactic that entails creating costs based on unique estimates for each client. Depending on the moment and the circumstances, customers are given various pricing based on an estimation of their wants. Rebates, on the other hand, are discounts that are paid consciously through a reduction, a return, or a refund. This is an example of customized pricing because it caters to both those who are searching for a deal with the rebate offer and those who are looking for the product rather than a deal and will not bother to redeem and can afford the full price. Rebate pricing algorithms are frequently complex (Spatt, 2020). Since rebates draw clients who never buy the products and those who would buy them regardless of refunds or returns, they might be seen as a type of tailored pricing.
2. Rebates appear as an expense on manufacturers’ spread sheets, they can still record the entire income on their books and appear to have stronger cash flow, which will boost their reports and raise their stock as a result. If a rebate is used, it counts as a sale. Sales and rebates are used by businesses to reduce surplus inventory, move soon to be outdated or obsolete products, encourage customers to try new products, and ultimately to turn a profit. A product that is kept on the store’s shelf won’t bring in any money for the manufacturer or corporation. Therefore, even a 1% profit after applying all rebates is better than nothing. Additionally, they could qualify for tax savings on their overall profit by classifying an item as a loss. Bottom line according to Muzaffar et. al (2018) is manufacturers would rather offer rebates instead of decreasing wholesale price because many consumers are too lazy and forgetful to spend time on redeeming rebates.
3. Best Buy wanted to do away with rebates since they price match other stores and, as a result, lose a lot of money if they put a rebate on top of that. Instead, they could just price match without the rebate attached. Furthermore, administering rebates requires a lot of administrative expenses from the merchant, which Best Buy might not have the funds for. Also, frustration or agitation is one way for a business to lose clients. Mail-in rebates are fantastic for generating a quick buck by taking advantage of a sluggish customer, but by making individuals jump through hoops to get a deal, they cast a negative light on the manufacturer and shop. It was in the best interest of businesses like Best Buy, Circuit City, and Staples to stop supporting rebates altogether due to customers being dissatisfied and it became unprofitable because businesses/companies do not get to directly benefit from the mail-in rebate’s revenues; because they stand to gain the most from this method and don’t have to interact with customers directly, the suppliers will be less motivated to abandon the mail-in refund.
References
Muzaffar, A., Malik, M. N., & Rashid, A. (2018). Rebate mechanism for the manufacturer in two-level supply chains. Asia Pacific Management Review, 23(4), 301–309. https://doi.org/10.1016/j.apmrv.2018.01.001
Spatt, C. S. (2020). A tale of two crises: the 2008 mortgage meltdown and the 2020 COVID-19 crisis. The Review of Asset Pricing Studies, 10(4), 759–790. https://doi.org/10.1093/rapstu/raaa019
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