Wikinvest Wire

Another View on Rebates

Sunday, March 05, 2006

Barry Ritholtz doesn't seem to appreciate the true value of rebates offered by many computer equipment manufacturers via their retailers. In a nutshell, buyers who purchase products with mail in rebates can get a discount roughly twice what would be available had a rebate not been offered, all other things being equal.

We'll explain in a minute, but first, have a look at the first scan to come out of a new Epson CX4200 printer/scanner/copier/back massager that was recently purchased for $30 (after rebates).

Not too bad.

The backside of the page shows through, and with the photo editing software provided with the printer along with all the gizmos and gadgets in the various control panels, this week's Economist cartoon might be made a little more presentable. But, there is little time to fiddle with these extra goodies when there is the larger issue of rebates on which to opine.


Yes, rebates are a pain - sometimes a big pain.

This particular printer cost $130 plus about another ten dollars in sales tax and the combined value of the three rebates (yes, there was one for $50, one for $30, and one for $20) was $100. It seems the most grating thing about the whole rebate process is that you have to pay sales tax on the rebate amount, which in this case is about $8.

So, it's really a $40 printer (after rebates).

Anyway, once the equipment was found to be in working order, all the rebate instructions were studied and the required material was assembled, filled-out, punched, stapled, folded, and then inserted into envelopes and sent on their way.

Please allow 8 to 10 weeks for processing and delivery of your rebates.

The nice thing about mailing in a rebate for a piece of equipment such as this is that it is very easy to make copies of all the completed paperwork. The copies of the paperwork can then be assembled, punched, stapled, and affixed via a push-pin to some bulletin board - somewhere out of the way but in plain sight, so that it can be retrieved, dusted off, and scoured for a phone number to call if the checks fail to arrive after three months.

So, how do you get double the discount when you buy something with a rebate? The explanation begins with this comment left by yours truly over at The Big Picture:

Statistics are hard to come by, but I believe the real reason why rebates exist is that many people never send in the rebate material to claim the rebate. I've heard numbers as high as 50 percent, but, this data is hard to come by.

The psychological effect is that if the buyer paid $1100 for the computer and had a $200 rebate, in his mind he has only paid $900. End of story - regardless of what happens next.

Many people are unorganized enough to throw away the box before they cut out the UPC label or fail to fulfill some other term of the agreement, so they just abort the process and go on thinking that they only paid $900.

So, others who have purchased the same $130 printer may have come home, unpacked the equipment, set aside the rebate forms to be filled out later, set the boxes out by the trash, and began fiddling with their new toy.

They probably think of it as a $30 printer, even though there is work yet to be done...

A couple days go by, and it's still a $30 printer, but the rebate work is beginning to fade from memory, and the rebate forms have worked their way down into a pile of other paperwork...

A week later, it's still a $30 printer and the boxes went out with last week's trash and the rebate forms are nowhere to be found - but that's OK, because all thoughts about doing rebate work have exited the owner's consciousness days ago.

This particular rebate is only available when you purchase a notebook computer, so some smarty at Epson probably figured out that the rebate submittal rate becomes exceptionally low when the new printer owner is distracted from his printer rebate forms by a new notebook computer.

So, if you figure that half the people never send in these three rebate forms to claim the hundred dollars, as Epson probably did when deciding to offer the rebates, then the real retail cost of this peripheral, all other things being equal, is about $80 - the average of the final cost paid by those who submitted the rebate and those who did not.

Both purchasers continue to think of it as a $30 printer.

16 comments:

Barry Ritholtz said...

My frustration was with two separate rebates: TiVo, and Sprint.

TiVo was purchased directly from the manufacturer, and so it was inexcusably absurd, in that they know the machine logs in every nite to download the program guide.

The Sprint/Samsung/Amazon rebate was on 2 phones for $450, and it wasn't until I threatened the consumer version of full scale nuclear war that I got satisfaction.

Afte reach situation, I MADE SURE the parties involved knew that they had lost a customer (or an evangelist in the case of TiVO, which is still my favorite household toy).

Tim said...

I agree with you on rebates in general - they do suck. But, there is money to be saved with what is most times just a little extra effort, that many people just don't follow up on.

Their lack of follow up is your savings (or at least that's my theory).

I've had a couple of really bad experiences also, most recently with Canon, but I too wish they would just do away with them.

cm said...

I don't shop a lot, and not often either, for the type of products that come with rebates, so I cannot claim much expertise. Based on the reasoning that 50% of people don't get the rebate, one can argue it's a "probabilistic discount" with high volatility, and the diligent (lucky?) are thus able to capture larger discounts than were the discount (effectively) available to everybody, no? (Aside from arguing the transaction/overhead costs are higher.)

Bottom line, Barry argued that in the absence of rebate offers baseline prices would be lower. I'm not convinced.

Could there be a legal/accounting rationale for rebates? I.e. inventory out in dealerships may have been commissioned to the dealer at a contract price that cannot be changed after the fact, or if so, the vendor may not want to do it for a whole installment of merchandise but only the part actually sold during the period. Plus the store will get to book the full revenue for its reporting, so only the vendor takes the hit.

But we are getting into rationalization territory.

Anonymous said...

Another thing about rebates that is a benefit to small businesses, etc. is that it has some tax advantages. While the rebate is supposed to be reported as income in order to reflect the "real" purchase price of the product, in practice this stuff never gets reported. It ends up as found money to whoever claims the rebate.

rtalcott said...

While I do agree....I do NOT like rebates....jsut give me the price and let's avoid the PITA overhead...I must admit that I have had a 100% success rate with getting them....and I buy a fair bit of computer hardware as in drives, mempry, boards etc....

No, I did get stiffed once and that was from NewEgg.

rt

iron56 said...

I think Tim's right--the rebates don't cost the manufacturer nearly as much as the face value because relatively few people remember or bother to send them in. They're rather like coupons in that respect--if everyone clipped the coups in the Sunday paper they'd be prohibitive as a loss leader.

My worst experience with rebates was with Iomega (the Zip drive maker) in late 1996. They stiffed me on a rebate on a Zip drive, claiming that my receipts were outside the valid timeframe.

Which was an outright lie; I sent them a stiff letter to that effect, and was also trying to find out how to report them for postal fraud. But before I got around to it, out of the blue a letter arrives from Iomega asking if I would accept a couple of new Zip disks as a settlement. I gather there'd actually been some sort of class action filed and they decided to settle quickly before the damage really escalated. Not that they hadn't already lost a lot of customer goodwill in my case...

Truly flagrant, not the sort of thing that inspires confidence in a vendor--and I've been leery of Iomega ever since. It also is a real head-scratcher: what idiot at Iomega made the decision to alienate lots customers with this sort of nickel-and-dime chicanery? I hope it wasn't a career step for this individual!

cm said...

iron56: If you can make good use of the additional drives that may be adequate compensation, but usually I'd think you buy enough merchandise for your needs, and additional units are not nearly as useful as cash.

It's like with "buy one get one free" for gallon containers of milk or "supersize" meals -- it may be good for a family of 4+, but I can run through only one gallon before it turns iffy, or comfortably eat only so much. I do use this type of discount quite a bit for building my stockpiles of non-perishables though.

iron56 said...

Well, I could use the additional disks (they were about $15 at the time) as that was before I had any other mass storage (CD burners were just coming out), and I would have been buying more in any case. And I had to consider the time and hassle of instead pursuing the $50 (as I recall) that they owed me instead. Sometimes it's better to take what you can get & run...

But you do remember the experience, and it influences future purchasing decisions!

Lord said...

One really needs to take all costs into account, not just the nominal ones. For the purchaser, it is the time to fill out, track, and follow up on the rebates. For the manufacturer, it is the loss of goodwill engendered by the processes imposed. I no longer consider rebates as part of the purchasing decision. Too often it is on an inferior product, indeed the sign of an inferior product.

cm said...

lord: But then many of us here are probably "bad" customers by some description or another. As long as vendors consider rebates an effective marketing tool, and by all appearances they are, they will be there. And we can still use them opportunistically.

moman said...

I hate rebates as well. I am currently waiting for $30 worth of Staples rebates from a bunch of junk I bought on Black Friday. Rebates just allow people (like me) to buy things they don't need or truly want because they think it's really cheap.

The companies have made a lot of money off me. I generally forget to send the rebates in but that's generally on small $10-15 deals. Anything higher and it goes in as soon as I remember!

bellevue_blogger said...

nobody has mentioned that some companies are moving towards online rebates. This is a godsend in my opinion, because it makes the whole thing much easier. I will only buy a product with rebate if I can file it online. success at costco.com and staples.

And screw ecost for never sending me my rebate checks.

pleasant_guy said...

I had a very bad experience with REBATES!

I have wasted so much of my time collecting my rebates:
1). Filling out forms, tabs, etc..
2). Mailing them
3). Calling for check updates, after months of waiting (the company hopes you forget it and don't even bother collecting the rebate)
4). Finally, when my cheque arrives...my name was spelled incorrectly (Big time....my penmanship is barnone)
5) Repeat above process #1 to #3 again.
5). Check arrived....and same shit! wrong spelling again...how can I cash the freaking #30 rebate!

So I gave up! Perhaps, I'm not the only one.

Anonymous said...

Rebates are like Canadian Tire money: Bullshit.

Give me the discounted price and you'll get my business.

Ooops, I always forget that other people consider themselves wheeler dealers, they love this nonsense.

Jamie said...

You mentioned that it's frustrating to have to pay tax on the before-rebate price. I agree. But, it looks like there are some legislators who are working on this. I found a bill on this issue in the New York Assembly that would have us only pay tax on the after-rebate amount. So, maybe people in the State of New York will get out of that extra tax burden someday soon.

Jamie said...

Here's the link to that New York bill to save us from the extra before-rebate taxes:
Bill Summary - A04705

Sorry for leaving it out of the previous comment.

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