How much is your product, really? (Rebates)

Product rebates are a curious application of drive-by marketing and probability theory. Companies offer them because they provide the perception of a lower price and allow the company to gather more information on its customers. You know, for future marketing purposes. The typical spiel looks like this

Transdimensional warp generator (Intel-compatible) (USB cable not included) Our price: $59.95 Mail in rebates $20.00 Your cost after rebate: $39.95

Consumers are naturally drawn to a perceived bargain. The problem is the
hidden costs make this less of a real bargain. Consider the choices: a vendor
can sell a product for $59.95 with a $20 rebate, OR they can just sell the
product for $39.95, no rebate.

Rebate Math Simple Math Price 59.95 39.95 Sales tax 8.8% 5.28 3.52 Rebate 20.00 (n/a) Cost of rebate (stamp, envelope) $0.47 (n/a) Cost to you $45.70 $43.47 $2.23

Sales tax is calculated on the original purchase price, and we have to buy a stamp and envelope to get the rebate. We’re down $2.23 from where we thought we were.
Those expenses are easy to quantify. Now suppose it takes us five minutes to
fill out the form — collecting all of the rebate requirements and writing teeny, legible lettering. Assuming you earned $15/hour, that’s another $1.25 of indirect
costs. The rebate has lost $3.48 of its value ($2.23 + $1.25), and is now worth $16.52.

Why companies want to offer rebates.

Gather customer information.
When I did the Pancake Mix project, I had to rely on IRI data. It’s fine for generalizations, but I didn’t know why people buy.

Whenever you buy something that has a UPC code on it, that goes into a database.
IRI data is used in aggregate form to compute where, when, and how much things are sold for. When correlated with census tract information, a marketer can come up with good generalizations on the groups of people who buy their products.

Rebates add a specific name and address to a product purchase. A company now also has the opportunity to contact you later to sell additional products and/or make money supplying your name to “marketing partners.” A valid name and address can easily net $2.

Ever wonder why those product registration cards ask all sorts of
curious information about your lifestyle, ethnicity, income, pets, and children? Those are part of Experian’s BehaviorBank. There are lots of similar databases. Don’t want to share? Throw the cards away.

Because you may not apply for the rebate Whenever someone doesn’t apply for a rebate, the average cost of the rebate to the company declines. For example, assuming 25% of the people who purchase a rebate-eligible product don’t bother to apply, our $20 rebate above now costs the company, on average, $15. You’d be hard pressed to get such an easy return on your marketing money.

It’s a free loan to the company While you’re waiting for your rebate,
the company holds onto your money. This helps stabilize a company’s cash flow,
but more importantly, it is essentially a free loan.

Suppose I get the transdimensional warp generators from the Altarian Penal Colony on May 1. The Altarians demand payment in one week.
You buy one from me on May 5. The Altarians are paid off on May 8.
Sometime thereafter you apply for the $20 rebate. Let’s assume I receive that on May 8. I’ve told you it takes 4 – 6 weeks to “process the rebate.” Meanwhile, I’m
on the phone ordering my next shipment of transdimensional warp generators, paying for them using money I really owe you. I cut you a check on June 19th, but send
it the slowest way possible. You get it on the 24th, deposit it that day, and
the money is debited from my account on June 26th, while I’m planning on my third batch of transdimensional warp generators.

Because you may not follow the instructions All rebates require a
proof of purchase. This is reasonable because a company giving away
money would find more claimants than purchasers. But what consitutes proof?
A typical, benign rebate might require:

• UPC label
• Rebate form
• Purchase receipt

If a company wanted to be hardass about it, they’ll insist on more specific
instructions. Furthermore, many outsource their rebate processing to groups like TCA who act as the “bad cop” in enforcement.
Leave off any required information, and your rebate gets disqualified, with the company shrugging its shoulders:

1. UPC code
2. Official rebate form, fully filled out with lots of personal information. A facsimile is not acceptable.
3. Original receipt with the purchase price circled. Circled. I said circled, not oval.
4. Place of purchase
5. Cover from the manual used in the previous version
6. Nine Digit ZIP Code (unless you’re Canadian, which means your fancy-pants postal code has letters)
7. A check for $3.99 for “shipping and handling.”
8. Sworn, notarized affadavit of eligibility and waiver of exploitation*
9. Handwritten lyrics to the theme from M.A.S.H.*
10. Biopsy sample*

I’ve not been able to substantiate any specific numbers, but
I’ve heard 25% of the requests fail to include one of the “required” elements.
TCA’s web site brags about rejecting “800,000 fradulent and noncompliant claims.”
I can imagine several
of these are honest customers who may not remember where they’ve placed their
biopsy canisters before the rebate expires.

On a recent Netgear Router rebate, I noticed they included a clause saying
I had to apply for the rebate within four weeks of purchase. Sneaky. This
takes away any ability to return the product.

Because, after all that, you may not cash the check. This is called “slippage.” Estimates vary, but typically 10% of the checks are lost or not cashed in time.

Adding these up
We started with a $20 rebate whose average cost is now $6:

• -$2 kickback from information shared with partners
• -$5 because some customers don’t apply
• -$5 from disqualified rebates
• -$2 from checks not cashed

Next time: the good, the bad, and the ugly.