Posted on: Sunday, March 7, 2004

Rebates spur buyers but many don't collect

By Lorrie Grant
USA Today

Whether for an everyday necessity such as deodorant or a new digital music player, marketers know that a discount is often necessary to close a sale with today's value-conscious consumers.

An increasingly popular way to dangle that price cut in front of them is to offer it as a mail-in rebate. Manufacturers, who usually sponsor the rebates, and retailers know they are a way to motivate the consumer without actually knocking much off the price.

"It's a wonderful trigger for purchasing, because it gives people the perception that they're saving money," says consumer psychologist Renee Fraser, president of Fraser Communications.

The reality is that consumers pay full price. They have to motivate themselves to get the promised discount — and often don't.

"Two people out of five never bother to apply for the rebate," says analyst Peter Kastner of information technology market analysis firm Aberdeen Group.

Adding to their natural inertia: The system is often set up to make applying for the money difficult.

Filing for the savings can require a frustrating amount of paperwork: cutting the product code from the packaging, having the original store sales receipt, filling out the sponsors' official form, recording product serial numbers and copying all the documents.

And the clock is ticking: Deadlines often are 30 days or fewer before the offer expires.

The larger the savings, the more consumers tend to follow through. On small items, retrieving the savings often doesn't outweigh the time and effort required. An item advertised at $2.49 after a $1 rebate costs $3.49 at checkout. To get the dollar back requires the paperwork plus 37 cents or more to mail it in.

But even with a higher-priced item, such as a $150 inkjet printer after a $50 rebate, redemption is nowhere near 100 percent.

"Consumers treat rebates as a discount at the time of purchase, but their post-purchase behavior is that they don't redeem them," says Dhruv Grewal, professor of marketing at Babson College and an expert in pricing.

Meeting rebate criteria was supposed to become easier with more automation. Some checkouts can print forms. Consumer electronics companies Dell, Best Buy and Circuit City, for example, have made rebate forms available online. But consumers still have to print them and do the rest manually.

The consumer who does follow through by the deadline often faces a wait of six weeks or more to see the rebate check. Most rebate redemptions are handled by third-party service companies who open and sort mail, log in consumer data and determine if all the requirements have been met. Then they bill the rebate sponsor. Once the sponsor pays, a check is sent to the consumer. If the sponsor pays with a paper check, that can build in a delay until the check clears.

The Federal Trade Commission acts on complaints of unfair rebate practices, such as failing to pay or paying late. Its rules call for checks to be mailed within 30 days unless the sponsor specifies longer — and most do, usually six to eight weeks. But the agency says few people file complaints.

Does this make rebates a sham? Experts say no, because all parties stand to gain something.

• Consumers can — if they are realistic about whether they'll claim the rebate — get an item at a lower price.

• Retailers, who have helped train consumers to wait for a sale price, can move merchandise at full price, with the discount provided by the manufacturer.

• Manufacturers get more sales bang for their sales-incentive bucks. A rebate worth 10 percent of the list price costs 5 percent if only half of all the buyers claim it.

In addition, product makers can glean information about customers, from the name and address on rebate forms to credit card data and phone numbers off the receipts.

"Anything you can do to get consumers to buy your product vs. your competitor is a valuable tool, because differentiation is very hard to buy," says Eugene Fram, marketing professor at Rochester Institute of Technology. "Your rebates make your products stand out against other highly commoditized products."