Rebates, widely known as refunds, are a popular tool used by businesses to promote their products and services. Rebates are distinct from coupons and other forms of discounting in that they reimburse a customer for part of the purchase price following, rather than at the time of, the sale. By offering consumers cash back on the purchase price, rebates provide an incentive to buy a particular product.
A relatively new method of promotion, rebating evolved from the marketing technique of offering coupons. They were initially offered by producers of grocery-store goods and subsequently by manufacturers of nonfood items. Currently, businesses making use of rebates are diverse and include the manufacturers of health and beauty aids, household supplies, and small and large appliances, as well as automakers, wine and liquor manufacturers, and segments of the computer industry.
The cash amounts these companies offer their customers is similarly wide-ranging; some rebates of less than a dollar are offered, while other rebates on "big ticket" items such as automobiles have reached several thousand dollars. The size of the rebate offered depends on the base retail price, the nature of the product being promoted, and the number of goods backed up in the production pipeline.
HOW REBATES WORK
A rebate is created when a manufacturer offers a rebate to all who purchase its product. Typically the offer carries an expiration date of six to eight months. The purchaser completes a form provided by the manufacturer and mails it—along with any other items the manufacturer may require, such as a cash-register receipt or the Universal Product Code (UPC) snipped from the packaging—to the address specified on the form.
Most commonly, the purchaser sends the rebate form and related "proof of purchase" items not to the manufacturer but to one of several large clearinghouses hired by the manufacturer to handle these transactions—for instance, the Young America Corporation in Minnesota or the Nielson Clearing House in Texas. The clearinghouse then processes the form and sends the purchaser a check in the manufacturer's name, usually within four to eight weeks from the time the purchaser mails in the required information.
Companies use a number of means to get their rebate forms into the hands of customers. Many companies supply a pad of tear-off rebate forms to the stores selling their products; others print the form directly on the packaging or on a tag hanging from the merchandise. To announce the rebate offer and distribute the forms, companies may also place advertisements in newspapers and magazines, utilize home mailers, and/or place ads in the myriad refunders' newsletters developed by consumers to avail themselves of these offers. In addition, companies frequently use television and radio advertisements to publicize their rebate promotions. Finally, there are several Internet sites that direct consumers to rebate offers, such as myRebates.com and CyberRebate.com.
PROS AND CONS
Rebates are highly attractive to most consumers. They provide a partial and tax-free cash reimbursement for their purchases; the Internal Revenue Service views rebates as a reduction in the price paid for a product, rather than as income. And for manufacturers, rebating provides numerous advantages: it induces prospective customers to try their products; it boosts company sales and visibility; it relieves problems of excess inventory; and it attracts interest from retailers, who often help promote the offer and expand the shelf space allotted to the manufacturer's goods accordingly. Rebate promotions can thus help a company increase its leverage with retailers and develop brand loyalty and repeat business among consumers over the long run. Indeed, a study conducted by United Marketing Services (UMS) found that rebates are an effective means of establishing product awareness with consumers. In addition, the information consumers provide on rebate forms can be used to target future promotions.
As rebates have increased in popularity, however, several common problems have emerged. For example, many companies have experienced problems honoring their rebate offers, largely due to an inability to keep up with demand. In fact, some companies offer rebates with the knowledge that only a small percentage of consumers bother to take advantage of them. Collecting on a rebate takes some trouble and concentration; consumers are forgetful, mislay the rebate coupon or the proof of purchase, and thus pay a bonus for the product. Companies relying on such probabilities sometimes fail to anticipate the level of interest the product or the rebate may generate; they plan rebate processing poorly, produce long delays, lose good will—and may even run out of money.
Due to the frequent mix-ups and delays in processing rebate submissions, some consumers now tend to view rebate offers as a sleazy marketing tactic. This means that fewer consumers will base their purchase decisions on the availability of a rebate. Experts note that consumers can increase their chances of receiving rebates due by sending all the documentation requested in the rebate offer; keeping copies of all forms and receipts; checking on the status of overdue rebates with the company; and reporting any problems to the Federal Trade Commission, the Better Business Bureaus, or the state attorneys general. Finally, experts advise consumers to never buy anything just for the rebate.
see also Coupons; Discount Sales
Davis, Douglas D., and Edward L. Millner. "Rebates, Matches, and Consumer Behavior." Southern Economic Journal. October 2005.
Kandra, Anne. "Rebate, Rebate, Who's Got the Rebate?" PC World. July 2000.
Royal, Leslie E. "Reap the Rebates." Black Enterprise. July 2000.
Steve, Smith. How to Sell More Stuff: Promotional marketing that really works. Dearborn Trade Publishing, 2005.
Hillstrom, Northern Lights
updated by Magee, ECDI
re·bate1 • n. / ˈrēˌbāt/ a partial refund to someone who has paid too much money for tax, rent, or a utility. ∎ a deduction or discount on a sum of money due. • v. / ˈrēˌbāt; riˈbāt/ [tr.] pay back (such a sum of money). DERIVATIVES: re·bat·a·ble / ˈrēˌbātəbəl; riˈbāt-/ adj. re·bate2 / ˈrabit; ˈrēˌbāt/ • n. & v. another term for rabbet.
Rebates are an extension of the coupon promotion. Also known as refunds, rebates reimburse a customer for part of the purchase price of an item after the sale. They differ from coupons in that coupons offer a discount in price at the time of sale. Rebates developed after the broad success of coupons in the latter half of the twentieth century.
The word "rebate" is derived from the Middle English word rebaten, which means "to deduct." The rebate is an attractive marketing tool to consumers because its offer of partial reimbursement for a purchase is tax-free. The Internal Revenue Service considers rebates a reduction in the price paid for a product and not as income.
How do consumers learn about rebates? Manufacturers typically offer a rebate to all purchasers of a product for a limited time offer. At the time of purchase, the consumer receives a form, which must be completed and mailed with proper proof of purchase to a specified address. This address usually belongs to a large clearinghouse that processes rebate claims, not the manufacturer. The clearinghouse processes the rebate and issues a check in the name of the manufacturer.
Who offers rebates? A wide range of businesses offer rebates to consumers who purchase their products. Rebates may be offered for household appliances, like a refrigerator, for auto parts, and for health and beauty products, among others. The amount of money offered in a rebate varies from product to product and manufacturer to manufacturer.
During the twentieth century, the enticement of the rebate has played an appealing role in wooing customers in a competitive marketplace.
rebate, partial refund of the total price paid for goods or services. In the United States, rebates were historically given by railroads to favored shippers as a return on transportation charges. The Elkins Act (1903), the Hepburn Act (1906), and the regulations of the Interstate Commerce Commission prohibit and penalize railroad rebates. A tax rebate from local, state, or federal governments may occur when unexpectedly large tax revenues create a budget surplus. The term is also used to refer to coupons, trading stamps, and other premiums used by retailers to stimulate sales.
Discount; diminution of interest on capital lent in consideration of prompt repayment thereof; reduction of a stipulated charge that is not credited in advance but is returned subsequent to payment in full.
A tax rebate is a sum of money refunded to a taxpayer after full payment of the tax has been made.