Personal Finance, Shopping 

Why I Like Rebates

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I know rebates are the scourge of mankind and I know that there’s been moves to curtail the use of them but I think rebates have their place for deal hunters and frugal shoppers. With the redemption rates of rebates in the pits (I’ve heard some surprising statistics) and reports of redemption centers being ridiculously strict in the interpretation of the rules, I still think that for the very diligent shopper and rebate sender, it’s still a benefit to have rebates.

Imagine if you’re a manufacturer of a widget that sells for $100 retail at any store and costs $60 to put onto the shelf (includes manufacturing, shipping, packaging, advertising, etc.). If you were to offer a $50 rebate, the consumer now believes the cost of the item to them is a mere $50 – it goes from regular priced to a steal. You hire Redemption Company A that boasts a redemption percentage on average of 10%. That means your expected payout on each $50 rebate is exactly $5. (expected payout is calculated by the probability of a successful redemption times the value of the rebate, or 10% times $50 = five dollars). On your $100 retail item with a $50 rebate, you as the manufacturer still expect to generate revenues of $95 per item which means a of $35 a piece.

What does this mean for diligent shoppers? It means that if you can get that rebate, you’re getting an item at a much cheaper price than the manufacturer intended – which is a win for you. Now, manufacturers may price a rebate such that even at 100% redemption they’re still making money, but that’s irrelevant because you’re still getting it cheaper than they anticipate (since they’ll be working with the redemption rate numbers plus fudge).

Why do I like rebates? It means better deals if I am reasonably confident of getting a rebate. If companies move towards automatic rebates with 100% redemption rates, you’re going to see the value of rebates fall dramatically. The expected payout goes from a percentage of the rebate amount to the entire rebate amount (100%).With the above $100 widget example, you’re now talking about the manufacturer giving a $5 automatic rebate instead of a $50 “hard to get” rebate, which is worse for the diligent shopper but better for average Joe shopper.

{ 5 comments, please add your thoughts now! }

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5 Responses to “Why I Like Rebates”

  1. Good point. As usual, there are ways for people that are persistent and know the system to come out ahead. I guess you just have to balance the benefits of the minority against the benefits of the majority. I imagine more people lose money from rebates than save money from them.

  2. Miller says:

    Your argument is good and vey true… however, I personally have been the victim of what I honestly think was an unfair denial of a rebate. It costs me around $300 (I think). It was one of those cell phone deal for signing up with a new carrier. $300 is a LOT of money to be shafted with. In addition, I would not have bought the item if it weren’t for the rebate.

    I completely agree with your argument above (as someone who is good about my rebates), however here is my problem. A rebate center can deny your claim, and honesty there is nothing you can really do about it. Keep xerox copies of everything. Yes. What about sending your mail with a receive recepit and insurance to make sure it gets there on time? How can you prove your rebate got there in time (that’s what happened to me)? I *know* I sent it with weeks to spare. But I denied… what can I do? Call up and listen to someone who really doesn’t care? That’s my big problem… you really can’t practically prove you did your rebate right if it gets denied. You just eat it. And if it’s a lot of money, you can end up pretty bitter.

    Am I wrong??? Is there something else I should have done?

  3. Miller,
    there are a lot you can do if rebates are denied.
    1) call them and ask to speak to a manager. Be polite but firm with your demands.
    2) If being polite doesn’t work, start using threats such as “If my rebates are not fulfilled as promise, I will report this company to the BBB, FTC, and Attorney General office.”
    3) Usually, step 2 would be enough…just in case they still deny…follow on your threats. Go file your complaint online..usually this takes about 10 minutes.
    4) last but not least, if you don’t see any results after steps 1-3, file a lawsuit at small claim court.

    **of’s probably not worth all your trouble if the rebate is $10 but if you are talking about $300…then yes, you will feel vindicated.

  4. “if I am reasonably confident of getting a rebate” – I think those are the key words. I made a couple of rebate purchases online this Thanksgiving and I’m not feeling that confident anymore. One of the items that was billed as really cheap came with two rebates requiring… you guessed it… two UPC symbols mailed to two different addresses. So I combined both rebates in the same envelope, with a note explaining the situation. What are the odds that a strict redemption company will give both? I think it’s going to be pretty small.

    So while rebates offer a great opportunity, I think they also bring a lot of risk.

    Personally, I’m with Miller’s comments above. There’s really very little you can do if they don’t send the money. All the solutions that mention will typically require a lot more time than it’s worth.

  5. mbhunter says:

    If you can play the game rebates are worth it. I’ll still prefer products that don’t require rebates, all other things being equal. Maybe even if they’re not exactly equal.

    Example: TaxCut includes a State program; TurboTax’s is free, after rebate. I’m going with TaxCut.

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