More Green Stuff e-Letter: Issue #3
November 28, 2006
Manufacturer Rebates: The Truth About Breakage and Slippage
by Alexander Green
Oxford Club Investment Director
The end of the year is nigh. That means, like me, you’re probably out there (or online) doing your holiday shopping and buying end-of-the-year business equipment you plan to write off for 2006.
Last week, for instance, I bought a Panasonic digital cordless answering system with dual handsets. At the register, the cashier told me I was entitled to a $20 rebate.
There’s little chance I’ll receive that rebate, however. And Panasonic knows it. Truth is, mail-in manufacturer rebates can be tougher to collect than you might expect. If you’re comparing the sale price of one item with the price of another after a rebate, you’re generally better off buying the higher priced item without the rebate.
Here’s why…
Dotting the “I”s and Crossing the “T”s is Just the Beginning
Manufacturers offer rebates as a marketing tool for one simple reason. A substantial percentage of customers never receive them. And you may be one of them.
What generally happens is this. You like the idea of getting back $20, $50 or $100, so make the purchase. But to actually collect, you’re forced through a burdensome and usually confusing process of cutting out proof-of-purchase logos, Universal Product Code stripes or box-top flaps.
Then you need to mail them, along with receipts and an application, to a post office box with nine digits to obtain your rebate – typically weeks or even months later.
Despite our good intentions, many of us – perhaps waking up and calculating what our time is worth – will not do this.
That’s exactly what the manufacturer is counting on. They even have a name for it: breakage. That’s why they intentionally make the process of rebate redemption difficult.
But let’s say you’re on to them, and so you jump through all the hoops required to claim your rebate.
You’re still not done. Manufacturers know that many customers will foul up the application process. That gives them the opportunity to reject a certain number of rebate applications because the wrong part of the box was returned, the application was mailed late, or the product was bought after the rebate offer had expired.
But perhaps you’re a stickler and your application is letter-perfect. You’re still not done.
The Truth on Rebates: Just Because You’ve Jumped Through the Hoops…
Manufacturers also count on a significant number of people never cashing the check they receive. And they generally increase the odds by sending the check bulk rate in an undistinguished envelope that looks like junk mail.
That means there’s a good chance you’ll throw the letter out without opening it. So, of course, the check never gets cashed.
Manufacturers have a name for this as well: slippage.
Clearly, only the most diligent and fastidious customers actually benefit from rebates.
Incidentally, this is not just my perception. The New York Times recently reported on a study done by Eitan Gersner at the University of California and James D. Hess at the University of Illinois, which found that consumers are actually worse off with rebates, “because they pay a higher price and incur redemption costs.”
There’s no question that this maze-like manufacturer rebate process is legal. But it’s not particularly ethical, in my view. Nor does it do anything to burnish the reputation of the manufacturers.
And now retailers are finally getting fed up with it, too.
The Lose-Lose World of Rebates
Best Buy recently announced the elimination of more than two-thirds of its mail-in rebates. By April, they plan to eliminate manufacturer rebates completely. Office Max, the No. 3 office-supply store, made a clean sweep of them this summer.
Good riddance, I say.
If you’re out looking for a deal this holiday season, sale prices, trade discounts and coupons that offer instant redemption are all good.
If you go for the mail-in rebate, however, bear in mind that there’s a good chance the manufacturer – not you – will wind up going “ho, ho, ho.”
Best Regards,
Alexander Green
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More on Manufacturer Rebates:
- Parago, a rebate processor, filed a patent application in 1999 that allow manufacturers to “retain hurdles sufficient to maintain breakage.”
- The Federal Trade Commission (FTC) has prosecuted a number of companies for failing to pay rebates, including CompUSA, the big electronics retailer.
- If you believe a retailer or manufacturer has denied you a rebate, complain to the FTC at www.consumer.gov/sentinel or call 1-877-382-4357.
- Instant rebates are a different story. They take place at the cash register and are just another form of old-fashioned discounting.
- If you’re looking for the best prices online, try using a shopping ‘bot. Among the best known are froogle.google.com, pricefish.com, shopzilla.com and pricegrabber.com.
Wit’s End
“Some coaches pray for wisdom. I pray for 260-pound tackles.”
~ Chuck Mills
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