What is Rebate Option
A rebate option is an offer for a cash return on the purchase of a consumer good or service. Rebates can come in many different forms. Flat-rate rebates are automatically subtracted from the purchase price. Conditional rebates are only valid under certain conditions, such as "buy one, get one free." Mail-in rebates typically require the consumer to mail in a form after they make their purchase in order to collect the discount. The rebate option is sometimes called "cash back."
BREAKING DOWN Rebate Option
Businesses offer rebates for many reasons. They can be a potent marketing tool, drawing customers who are attracted to the prospect of receiving discounts on expensive items. While businesses sometimes take a loss on a rebated product, they often make a profit even after the rebate. Even in cases when they do take a loss, customers who purchase items with rebates attached may buy other items in the store, giving the business a net profit. Additionally, some companies "price protect" certain products by offering rebates on others, hoping that sales of products with rebates will allow them to keep other products at a desired price point.
Mail-in rebates are one of the most familiar types of rebates. Since they require a certain amount of effort, some consumers fail to take advantage of them. Many businesses take this into account when making the decision to offer a mail-in rebate. Knowing in advance that only a certain proportion of customers will take the cash back, they can estimate an average price reduction less than the amount of the rebate. Another advantage of mail-in rebates for businesses is that they can provide valuable customer data.
Rebates are commonly offered on new vehicles. Typically, the vehicle manufacturer pays for the rebate, rather than the dealer. The manufacturer gives money to the dealer, which then transfers it to the consumer. Dealers are required by law to pass on the full amount of the rebate to the customer, provided the customer qualifies for it. Rebates sometimes harm the resale value of vehicles, since they effectively lower their sticker price.
Rebates vs. Discounts and Reduced Interest Rates
Rebates are collected after payment, while discounts are taken before purchase. Discounts are more likely to be offered by retailers, while rebates are more likely to be offered by manufacturers. Reduced interest rates, meanwhile, affect monthly payments on large purchases like vehicles. Car shoppers are sometimes presented the option between a rebate and a reduced interest rate. The rebate option will give the buyer more immediate cash in hand, but reduced interest rates can provide bigger discounts in the long run.