Hidden Costs Of Product Rebates

By Robert Stammers AAA

Companies offer billions of dollars a year in the form of cash incentives to attract buyers to products and retail stores. These are referred to as "rebates", but although this word is often music to consumers' ears, according to a 2005 article in BusinessWeek, a full 40-60% of rebates are never redeemed, due partly to the difficulty in the redemption process. Rebates can be a way for consumers to score a better deal on merchandise, but depending on what type of rebate is involved, there are often many hurdles to getting the full discount. Before you make plans for spending your product rebate check, read on to find out what you might have to go through to get it. (For related reading, see Sneaky Strategies That Fuel Overspending.)

The Purpose of Rebates
Retail store rebates are traditionally provided in one of four common structures:

  1. In-Store Cash Rebates: The retailer deducts a cash incentive amount, which is provided by the retailer or manufacturer at the time of the sale.
  2. In-Store Credit Rebate: The retailer provides store credit to be used at that retailer against future purchases.
  3. Mail-In Rebate: Provides for a cash incentive at a contracted future date in the form of a check if the customer abides by all conditions, including processing requirements.
  4. Some combination of the instant, credit or mail-in rebate.

These types of incentives are also known as "loss leaders", in which incentive providers take a smaller profit - or sometimes even a loss - on specific items in order to draw people into stores. This incentive is provided in the hope that consumers will purchase other full-priced items, or develop an interest in a specific brand or line of products that the store offers. Although opportunities for these deals are limited, they can be a boon to consumers, especially when retailers accept manufacturer coupons on rebated items.

For the store credit offers, the credit can be considered a short-term loan to the retailer because the discount is only received during future purchases, often for specific store-branded items.

The greatest number of complaints surrounding rebates involve mail-in rebates. Arduous and demanding requirements for processing these rebates tend to keep consumers from receiving their checks. For some unscrupulous retailers and manufacturers, the popularity of this form of rebate in concert with that the estimated 40-60% of them that are never redeemed, leads to opportunities for abuse, and has changed the goal of using them from product marketing to a method of obtaining higher profit.

Deal or Corporate Profit Driver?

Bait and Switch
Although the successful redemption of consumer rebates results in lower costs to purchasers, there are various ways in which these offers are used to the benefit of rebate providers. First off, many of these rebates are used to clear inventory of older, discontinued models. Consumers have long been warned about retailers' bait-and-switch tactics, but the rebate phenomenon only enhances retailers' ability to get away with these tricks. For example, retailers often stock a limited number of the items available for rebate. Once consumers have been enticed to purchase an item, they may be steered to more expensive items when the one they came for is no longer in stock.

Bait and Rebate
Another form of bait and switch is known as "bait and rebate". This tactic involves pairing a popular product with another product with slow sales but a rebate attached. Consumers are then required to go through the rebate process in order to get an ancillary product. A more egregious situation is when consumers enticed by a rebate offer discover that their ability to receive the incentive is contingent on purchasing a contract or services for something the consumer doesn't want or need.

Mail-In Rebate Misadventures
However, complaints about the scarcity of rebated items and bait-and-switch tactics are dwarfed by the complaints surrounding the probability of receiving mail-in rebate checks. Applying for a mail-in rebate general involves filling out and sending in a number of forms, receipt copies and UPC labels and all this must be completed according to the deadline requirements to validate the process. By making the process more and more difficult and by making a botched application almost impossible to fix, the retailers hope to dissuade consumers from following through on collecting their rebates. If the rebate provider succeeds, it is rewarded with additional revenue. However, even if a consumer eventually receives the rebate, the time and energy it takes to cash in can be significant costs that many consumers don't account for.


The reason that consumers must wait so long for their rebates is built into the rebate process. The process often involves the product manufacturer, the retailer and the rebate fulfillment house; and, each company relies on the others to ensure that things go smoothly. When things go wrong, a game of finger-pointing often begins, leaving consumers frustrated and powerless. Fulfillment companies can't send any money until the manufacturer or retail store provides the rebate money, which can take anywhere from 15 to 90 days after it has been invoiced by the fulfillment company. Sometimes, the manufacturer fails to pay the invoice at all, requiring the invoice house to put the sponsoring debt into collections. This can significantly delay the consumer's payment - if it arrives at all.

Another common complaint about mail-in rebates is that rebate sponsors purposely change the rebate rules or hide eligibility requirements, making it difficult to qualify for a check. For example, complaints to the Federal Trade Commission about rebates included concerns from people who did not wish to provide specific personal information on the rebate form (due to privacy concerns), but were not informed that such information was necessary to be eligible for the rebate.

Taking the "Bait" Out of Rebate
In the year 2000, in response to concerns about rebate abuse, the Federal Trade Commission (FTC) began taking action against fraudulent rebate providers. Because deceptive advertising is forbidden by the FTC Act, the FTC has brought charges against a number of companies in regard to their product rebates, including Buy.com, ValueAmerica and Office Depot (NYSE:ODP). (For related reading, see Credit Scams To Watch Out For.)

Even state regulatory agencies are getting on board. On September 1, 2007, the state of Texas enacted a new rebate law. According to the Texas attorney general:

"A company offering a rebate must mail the rebate amount to the consumer within the stated time period. If the company does not state a time period, it must pay the rebate within 30 days after the consumer submits a properly completed rebate request".

Reading the Fine Print
In addition to carefully investigating and fulfilling all rebate requirements, there are certain things that should and should not be done to help the rebate payment process along.

Things to Avoid:

  • Avoid companies that don't provide consumers at least 30 days to redeem their rebates
  • Avoid companies that will not accept copies of receipts because this provides no recourse if the original application is lost.
  • Avoid rebates that require information that is not necessary to process the rebate.
  • Avoid rebates from companies that do not provide specific contact information or processes to help identify, track and facilitate rebate applications that go unfulfilled.
  • Avoid rebates from companies that are having financial or business problems. If the company goes bankrupt, it is unlikely that you will ever see your money.

Rebate To-Do List:

  • Read the fine print and understand all eligibility requirements.
  • Keep all copies of forms, receipts and correspondence in case you are asked to reprocess a claim.
  • Process rebates as quickly as possible. Most rebates have strict deadline policies; if you miss them you are out of luck.
  • Check your mail carefully. Some unscrupulous companies will make rebate checks look like junk mail so that they will be ignored and tossed in the trash.

If you never receive your check and can't get any help from the issuing company, you can check into what company is handling the rebate at MyRebates.com. For rebate status tracking try using WheresMyRebate.com or Rebatestatus.com.

Conclusion
There in no doubt that if done quickly, correctly and diligently the rebate process can be worked to consumers' advantage, but approach all rebate offers with a dose of skepticism; they are not provided for consumer benefit but for the benefit of the sponsoring organization. With the increase in abuse and consumer complaints, increased investigation into the sponsoring companies you propose to do business with is warranted.

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