High-tech retailers, low-tech rebates

December 02, 2005 2:22 PM EST

Tis the season to be Jolly - and to fill out rebates. Most consumers love the holiday sales on consumer electronics items. But the majority also hate mail-in rebates.

Rebates are clunky, bricks and mortar affairs that involve paper forms, clipping labels from boxes and sending them via the U.S. mail. Then you wait 10 weeks to see if the check actually arrives. Why do retailers persist with such programs in the era of e-commerce, Web services and instant gratification? Aren’t rebates legacy technology? Well, not exactly.

This week, after dutifully completing five different mail-in rebates required for the purchase of a “free” computer bundle at Circuit City and mailing them all in I decided to ask an expert why a high-tech retailer would ever want to resort to such low-tech promotions. The story of my struggles to fill out all of the rebate forms and comply with all of the terms and conditions was the subject of yesterday’s blog. Today I look to the expertise of consumer electronics analyst Stephen Baker at The NPD Group to explain the ultimate wisdom of the mail-in rebate.

Before the call I had spent two hours literally piecing together everything I needed to get the rebates in the mail, and returning to the store to pick up form that somehow failed to print out at the time of sale. Someone on the other end surely would have to handle those scraps of paper as well. There’s more than a little irony in the idea of purchasing a computer and then using a time consuming, manual process that the very item one has purchased could easily have automated. But why do rebates at all? Just put the damned thing on sale and be done with it.

The Big Lie
I had read that retailers like to sell prepaid gift cards, and that they’re highly profitable because consumers lose them or let them expire. So I asked Baker, cynically, whether rebates were more cost effective because some people don’t turn them in. He would have none of it. “The big lie that the media and attorneys general want you to believe is that all the retailers and manufacturers are crooked and the reason [they] do rebates is breakage, which is people not turning them in,” he says. The “vast majority” of consumers do turn them in, and very few are rejected, he adds.

Rebates are used, Baker says, because unlike regular sales, people perceive them as a one-time opportunity to get a product at a lower price than it would normally be sold at. “You want to make believe that there is a special opportunity here and rebates are the best mechanism for that,” he says. They are especially valuable to electronics retailers because they don’t scale pricing up and down the way some other retailers do. “Their customers haven’t been trained,” he says.

Trained? I ensivioned myself, the consumer, as one of Pavlov’s dogs, trained to drool on command.

I parried. But what about all of the aggravation suffered by the consumer – and to the retailer? It’s not a problem for the retailer because they farm out fulfillment to a third party, he says. But Baker acknowledges that users absolutely hate rebates. Some retailers, such as Wal Mart, stay away from them entirely, and Best Buy would like to eliminate them as well because customers dislike them so much. “I’m not going to tell you that rebates are the perfect mechanism to do things. Consumers don’t like them and attorneys general don’t like them, but they do provide a mechanism for people to get stuff at much lower prices,” he says. But if rebates go away, he says, the savings won’t all go toward lower prices. “Retailers will keep some of that.”

Search for the Easy Rebate
Regardless of who does the processing, surely there is a cost which ultimately is passed on to the retailer when it pays the fulfillment organization. Why not automate? I cited the example of the Staples Easy Rebate program, where customers can log into a Web site and enter information on an electronic form. No cutting up boxes for UPC codes. No paper forms to fill out. No postage stamps. No handling. In fact, I recently purchased a notebook computer case at Staples and it took me all of ten minutes online to submit my rebate claim. The check came faster – just a few weeks later instead of 2 1/2 months cited in the Circuity City paper rebates.

Baker had ready answers. First of all, Circuit City and other consumer electronics retailers have made the process much easier than I give them credit for, he says. Rebate forms and receipt copies now print out at the register - no more going to the customer service desk bulletin board to find your claim form. Some merchandize comes with proof of purchase and serial number stickers that peel off the boxes for easier removal. And many, including those from Circuit City, allow you to track the status of your rebate online. That is, once you mail it in. “Most retailers are pretty clear about what you have to do to get [the rebate],” he adds.

As for Staples, Baker gives then a nod for making the process easier. “They were willing to invest in that.” But he adds, not all rebates on Staples products qualify for the Easy Rebate program. It depends on the retailer’s relationship with the manufacturer – and the potential for fraud. Rebates on electronics products are a prime target for fraud rings, especially when rebates are large. “When you do things that don’t require the cut-out of the UPC there are a lot of opportunities for fraud,” he says.

Baker acknowledges that “there is a bright light of aggravation” on the rebate process. Contrary to popular opinion, no retailer wants to make its customers angry because in the cutthroat consumer electronics business there’s always a competitor around the corner selling the same thing. But as long as consumers like me keep buying into rebates, retailers are likely to keep using them.

As for my bellyaching about the two hours I spent filling out forms, making copies, cutting up boxes for UPC labels and mailing in five rebates, Baker was unsympathetic. “If you want something special you have to put the time in to get it,” he says flatly. “I don’t think that’s terribly onerous when you’re offering someone $500 if you take 15 minutes.” In other words, stop whining, suck it up and accept your rebate check like a man.

Ouch.

Follow up post by the author: It's official: We hate rebates