The end of the mail-in rebate is near.
Its passing may not be mourned, not by consumers or even by retailers and manufacturers of electronic gear. The marketing tool forced customers through an onerous and usually confusing process of cutting out proof-of-purchase logos, Universal Product Code stripes or box-top flaps and mailing one of them along with receipts and an application to a post office box with nine numbers to obtain a discount — typically weeks or even months later.
Consumers did not like them and, it turns out, retailers and manufacturers ended up unhappy about them as well. In recent months, big chains like Best Buy and OfficeMax have announced their demise. Best Buy said that it had eliminated more than 65 percent of mail-in rebates, and by April they will be a relic. OfficeMax, the No. 3 office supplies store, made a clean sweep of them this summer. Internet rebates are also disappearing.
“People really dislike mail-in rebates, and it was becoming a reflection on us and not the manufacturer who was offering the rebate,” said Ryan Vero, executive vice president and chief merchandising officer at OfficeMax. “It was the No. 1 customer conflict we were getting.”
OfficeMax thought of the move, Mr. Vero said, “as a liberation campaign.” So do a number of manufacturers. Hewlett-Packard is gradually reducing them. Dell, which sells its equipment directly to customers, is also retiring the promotional tool. Linksys, the Cisco unit that sells home network equipment, stopping using mail-in rebates in March. Its reasoning was the same as Best Buy or Office Max: “It’s easier for us,” said Karen Sohl, a Linksys spokeswoman.
The end of mail-in rebates might seem like a defeat for the bargain-hunting consumer. That is true, for the conscientious rebate seeker at least. The power of the Internet may, however, offer some solutions to finding low prices.
More than 15 years ago two business school professors, Eitan Gerstner, now at the University of California, Davis, and James D. Hess, now at the University of Illinois, found that manufacturers prefer rebates while retailers prefer trade discounts. They concluded that consumers, however, “are worse off with rebates because they pay a higher price and incur redemption costs.”
Most consumers will not miss the advantages that rebates promised. That is because only the most diligent and fastidious consumers took advantage of rebates. Retailers and manufacturers intentionally made the process of rebate redemption difficult. They even have a term for it: breakage.
Whether the rebates were mail-in or via the Internet, they counted on consumers messing up somewhere along the process and, indeed, designed the process so there were opportunities for that to happen. They would reject a certain number of rebate applications either because the wrong part of the box was returned, the application was mailed late, or the product was bought after the rebate offer had expired.
Other offers imposed additional barriers for consumers, like an online confirmation of a rebate or its payment.
Indeed, the industry seemed fairly upfront about discouraging customers. Adrian Kingsley-Hughes, who writes a blog called The PC Doctor (at www.pcdoctor-guide.com/wordpress), recently discovered a patent application filed by Parago, a rebate processor, in 1999, outlining a computerized system for redeeming rebates. The patent notes that “manufacturers establish procedures to maintain a sufficient rate of breakage” and it developed a system that “provides a user-friendly interface, yet retains hurdles sufficient to maintain breakage.”
Companies also count on a certain number of people never applying for the rebate and another set that will never cash the check they receive in the mail, what they call slippage. The NPD Group, the Port Washington, N.Y., market analysis firm, did a survey several years ago that found around 90 percent of consumers were applying for rebates and 80 percent were getting the rebates. Other surveys showed a larger gap.
The Federal Trade Commission went after a number of companies for failing to pay rebates, including CompUSA, the big electronics retailer, in 2004 and 2005. (If you think a retailer or manufacturer has denied you a rebate, you can complain to the Federal Trade Commission at www.consumer.gov/sentinel or you can call 1-877-382-4357.)
The government got the result it wanted. The rebating industry has largely cleaned itself up in recent years. In CompUSA’s case, it agreed to a consent decree in which it would, among other things, stop misrepresenting the time it would take to redeem a rebate and deal only with reputable manufacturers.
But the damage has been done. Retailers and manufacturers discovered that consumers did not respond to rebates as they used to. (Stephen Baker, a vice president for industry analysis for NPD, has not seen evidence that a no-rebate policy drives traffic into a store.) For the company there is another risk. In year-to-year comparisons, revenue appears to decline when stores drop rebates, which does not please investors. If last year the company sold the $100 product with a $20 rebate, but this year it sells an $80 product, it looks as if its revenue per unit has fallen 20 percent. “You have to sell 25 percent more to compensate,” Mr. Vero said.
It isn’t always easy. Last week, for instance, while OfficeMax offered a Brother multifunction printer for $160, its rival Staples could offer it for $150 after a $50 rebate by the store. “We may not have the lowest price in any given week.” Mr. Vero said. In its latest quarter, OfficeMax said revenue from stores was flat, but when adjusted for the elimination of rebates, sales at stores open a year grew about 1 percent.
Rebating has been most common with computers and computer-related products. Retailers have rarely offered rebates for televisions, for instance, because they strike deals with manufacturers not to advertise discounted prices. If they do, they risk the manufacturers’ withholding money that help pay for joint advertising. Rebates, however, are still a common marketing tool for vendors of flash memory devices, the small flash drives or memory cards, because rebates provide a way to manage sales as prices of the product continuously drop.
In its place come instant rebates taken at the cash register, which is just another form of old-fashioned discounting. “Retailers don’t have to reduce the prices, and the money they would have spent on rebates goes some place else, for advertising or profit,” Mr. Baker said. “It will definitely result in some higher prices.”
Linksys has shifted to offering gift cards. On Black Friday, the big shopping day after Thanksgiving, it is giving out a $30 gift card for every purchase of a $130 wireless router. (It has been offering a $20 in-store discount on what is currently a $150 device.)
There are other ways that consumers don’t benefit from rebates, like paying tax on the full price. For instance, CompUSA recently advertised a Maxtor $750 one-terabyte external hard drive for $430 after a $200 markdown and $120 in rebates. That’s a great price for a cutting-edge piece of technology. But the buyer pays sales tax on the pre-rebate price. At 8.38 percent, the rate for New York City, that amounts to paying an additional $10. (The national sales tax average is 5.9 percent, but it is not uncommon to pay much more in most large cities.) The Brother printer at Staples, mentioned earlier, could cost more than the one at OfficeMax because of taxes.
In other words, if you found the same product, with no rebates, for less than $439 the shopper would be better off buying that.
How do you find that one? There are a number of Web sites that troll online stores checking prices. Sometimes called shopbots, these sites are a necessary tool if you are trying to find the lowest prices.
The best of them allow you to rank the prices, give ratings on the stores and compute what the real cost will be after shipping and taxes. Some of the more popular bots are shopper.cnet.com, nextag.com, pricefish.com or shopping.com. Others, like Edeals.com, fatwallet.com, bensbargains.net, retailmenot.com and mybargainbuddy.com try to find temporary promotions that knock down the price.
Do not forget Gottadeal.com’s Black Friday list. It is back again this year scooping the retailers on the deals they will be offering the day after Thanksgiving by obtaining advance copies of the preprinted Sunday newspaper advertising circulars. You can find it at www.blackfriday.gottadeal.com where it has already posted information on the discounts at BestBuy, Circuit City, KB Toys, Sears and OfficeMax.