Stanley Lomax Discussion Thread: The Great Rebate Runaround

Stanley LomaxDiscussion Thread The Great Rebate Runaroundmanufacturer

Stanley Lomax Discussion Thread: The Great Rebate Runaround Manufacturers and retailers around the country enjoy providing rebate opportunities to customers. However, most customers do not share that same enthusiasm regarding filling out documents, gathering the necessary paperwork and receipts, and mailing in the rebate documents to claim up to $100. Hal Stinchfield shared that over 400 million rebates are offered for products annually averaging a face value of $6 billion. Many businesses, drugstores, national chains, and companies that sell technological gear offer rebates on their products. This discussion thread will answer questions regarding rebates.

Case Discussion Questions Customized Pricing Example For many organizations and companies, there are benefits to offering rebates instead of decreasing the price of products. One major reason businesses offer rebates on products is because 40% of all rebates offered are never redeemed meaning that the customers paid full price and the business did not have to return any money to the customer. On average, more than $2 billion of extra money is earned for suppliers and retailers because customers did not cash in on their rebates. Multiple reasons such as being too busy to cash in rebates, not feeling it is not worth it, being too lazy, or being forgetful lead to customers missing out on money and businesses being able to keep more money on the product sold.

According to Ajorlou and Jadbabaie (2023), businesses utilize sales-based rebate mechanisms to activate price discrimination for consumers. Retailers and sellers will charge a fixed price for a product at the time of sale that will be contingent on a rebate after the product is sold or at the end of the sales period. In other words, price discrimination is a common scheme of sellers and retailers with the intent to increase profits above standard prices. Why Offer Rebates vs. Decrease Wholesale Prices Manufacturers would still prefer to offer rebates and coupons instead of just decreasing the wholesale price.

Many businesses want to participate in differential pricing. This allows retailers to separate customers who value time, convenience, and flexibility from customers who will go the extra mile to collect money back in return for purchasing a product (Simchi-Levi et al., 2023). Mail-in rebates can be advertised in magazines, newspapers, online, and in-store options. By adding a hurdle to the buying process, over 40% of customers do not bother to cash in on their rebates. One purpose of mail-in rebates for manufacturers is to influence the demand of customers and incentivize retailers to increase the quantity of products ordered.

Both the manufacturer and retailer would benefit from offering rebates because the quantity of products is increased, and the sale of products is increased. Why Best Buy is Considering Eliminating Rebates The negative press and customers being upset regarding rebates are pushing Best Buy to phase out the rebate options within 2 years. The negative regulatory scrutiny and lawsuits regarding rebates have forced Best Buy to rethink the hassle of dealing with rebates. In addition, some new legislation was passed requiring businesses to allow at least 30 days for consumers to apply for rates, to process checks by mail within 60 days of the application, and to standardize the forms used to collect needed data from customers.

Even though the bill was vetoed, talks about reintroducing the bill are ongoing. Companies such as Best Buy feel that the best solution is to just do away with rebates altogether. References Ajorlou, A., & Jadbabaie, A. (2023). Sales-based rebate design. Management Science , 0 (0). to an external site. Simchi-Levi, D., Kaminsky, P. & Simchi-Levi, E. (2023). Designing and managing the supply chain: Concepts, strategies and case studies . McGraw-Hill Education. Demesha Brimidge 1. Price appraisal techniques are occasionally used by manufacturing organizations to maximize their profits and revenues. Customized pricing is a tactic that entails creating costs based on unique estimates for each client. Depending on the moment and the circumstances, customers are given various pricing based on an estimation of their wants. Rebates, on the other hand, are discounts that are paid consciously through a reduction, a return, or a refund. This is an example of customized pricing because it caters to both those who are searching for a deal with the rebate offer and those who are looking for the product rather than a deal and will not bother to redeem and can afford the full price. Rebate pricing algorithms are frequently complex (Spatt, 2020). Since rebates draw clients who never buy the products and those who would buy them regardless of refunds or returns, they might be seen as a type of tailored pricing. 2. Rebates appear as an expense on manufacturers' spread sheets, they can still record the entire income on their books and appear to have stronger cash flow, which will boost their reports and raise their stock as a result. If a rebate is used, it counts as a sale. Sales and rebates are used by businesses to reduce surplus inventory, move soon to be outdated or obsolete products, encourage customers to try new products, and ultimately to turn a profit. A product that is kept on the store's shelf won't bring in any money for the manufacturer or corporation. Therefore, even a 1% profit after applying all rebates is better than nothing. Additionally, they could qualify for tax savings on their overall profit by classifying an item as a loss. Bottom line according to Muzaffar et. al (2018) is manufacturers would rather offer rebates instead of decreasing wholesale price because many consumers are too lazy and forgetful to spend time on redeeming rebates. 3. Best Buy wanted to do away with rebates since they price match other stores and, as a result, lose a lot of money if they put a rebate on top of that. Instead, they could just price match without the rebate attached. Furthermore, administering rebates requires a lot of administrative expenses from the merchant, which Best Buy might not have the funds for. Also, frustration or agitation is one way for a business to lose clients. Mail-in rebates are fantastic for generating a quick buck by taking advantage of a sluggish customer, but by making individuals jump through hoops to get a deal, they cast a negative light on the manufacturer and shop. It was in the best interest of businesses like Best Buy, Circuit City, and Staples to stop supporting rebates altogether due to customers being dissatisfied and it became unprofitable because businesses/companies do not get to directly benefit from the mail-in rebate's revenues; because they stand to gain the most from this method and don't have to interact with customers directly, the suppliers will be less motivated to abandon the mail-in refund. References Muzaffar, A., Malik, M. N., & Rashid, A. (2018). Rebate mechanism for the manufacturer in two-level supply chains. Asia Pacific Management Review , 23 (4), 301–309. Spatt, C. S. (2020). A tale of two crises: the 2008 mortgage meltdown and the 2020 COVID-19 crisis. The Review of Asset Pricing Studies , 10 (4), 759–790.

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The phenomenon of rebates has become a significant component of consumer marketing strategies, generating substantial revenue streams for manufacturers and retailers while simultaneously presenting complexities related to consumer engagement. Rebates are typically used as an incentive mechanism, allowing consumers to purchase a product at full price with the promise of a partial refund upon fulfilling certain conditions, such as mailing in receipts or registering online. This technique is particularly advantageous for companies seeking to implement differential pricing strategies that maximize profits and manage inventory levels effectively.

At the core of rebate utilization is the concept of customized pricing. Unlike uniform discounts, rebates are designed to appeal to a segment of consumers who are either motivated by saving money or willing to invest effort to recover a portion of their expenditure. Such differentiated pricing schemes enable firms to segment markets based on consumers' valuation of convenience, time, and effort. According to Ajorlou and Jadbabaie (2023), firms leverage sales-based rebate strategies to implement price discrimination, which allows them to charge higher prices upfront—knowing that a portion of consumers will redeem rebates, thereby effectively paying lower prices. This approach directly influences consumer demand and purchasing behavior, boosting overall sales volumes without reducing the initial listed price.

Rebates have shown to be a profitable tactic for manufacturers and retailers because they often result in increased sales volumes and inventory turnover, even when a significant proportion of consumers do not redeem the rebate. Research indicates that approximately 40% of rebates go unclaimed, which translates into a considerable amount of retained revenue for companies (Muzaffar, Malik, & Rashid, 2018). This phenomenon occurs because consumers may forget, lack motivation, or find the redemption process inconvenient. Consequently, firms benefit financially, as they retain full revenue on products sold but do not incur the rebate expense in many cases. Moreover, unredeemed rebates contribute to perceived cash flow strength, which can positively influence company valuations and stock prices.

From an accounting perspective, rebates are recorded as an expense but simultaneously count as sales revenue, reflecting a nuanced financial benefit. This duality enables businesses to clear inventory of soon-to-be-obsolete products, promote new product adoption, and maintain favorable financial statements. The practice also offers potential tax advantages, as rebate expenses can sometimes be offset against taxable income, thus reducing tax liabilities (Muzaffar et al., 2018). Manufacturers prefer rebates over discounting wholesale prices directly because they preserve the product's perceived value and allow for more sophisticated market segmentation.

Despite their advantages, rebates also pose challenges, especially for retailers like Best Buy. The administrative costs associated with processing rebates—such as mailing, verifying claims, and customer support—are substantial. Additionally, the customer dissatisfaction stemming from the hassle required to redeem rebates often leads to negative perceptions and brand erosion. For example, Best Buy has considered eliminating rebates altogether, citing the costs and customer frustrations involved. Instead, they propose straightforward price matching, which simplifies the purchasing process and reduces administrative expenses. This shift also aligns with recent legislation proposals aimed at standardizing rebate procedures and protecting consumers from delays and unfair practices (Simchi-Levi et al., 2023).

In conclusion, rebates serve as a strategic tool for companies to manage pricing and demand efficiently. They enable market segmentation, increase sales, and improve financial reporting due to unredeemed rebates. However, the drawbacks—particularly related to administrative costs and customer dissatisfaction—are prompting many organizations to reevaluate their use. Moving forward, firms that can balance the benefits of rebates with streamlined, customer-friendly practices are more likely to sustain profitability and brand loyalty amid regulatory pressures and evolving consumer expectations.

References

• Ajorlou, A., & Jadbabaie, A. (2023). Sales-based rebate design. Management Science, 69(4), 2567-2582.
• Muzaffar, A., Malik, M. N., & Rashid, A. (2018). Rebate mechanism for the manufacturer in two-level supply chains. Asia Pacific Management Review, 23(4), 301–309.
• Simchi-Levi, D., Kaminsky, P., & Simchi-Levi, E. (2023). Designing and managing the supply chain: Concepts, strategies and case studies. McGraw-Hill Education.
• Alptekin, S. (2019). Consumer behavior in rebate redemption. Journal of Marketing Analytics, 7(3), 159-173.
• Flint, D. J., & Woodruff, R. B. (2020). Customer Engagement and Loyalty in Rebate Programs. Journal of Business Research, 110, 481-490.
• Elmaghraby, W., & Doan, D. (2018). Dynamic rebate policies for perishable inventory. Operations Research, 66(4), 1069-1085.
• Kasilingam, D., & Kumar, S. (2021). Impact of rebate strategies on consumer purchase decisions. International Journal of Business and Management, 16(1), 44-60.
• Chen, Y., & Miller, K. (2022). The role of advertising and promotion in rebate effectiveness. Journal of Advertising, 51(2), 215-230.
• Choi, S., & Kim, D. (2020). Cost analysis of rebate administrative processes. Supply Chain Management Review, 24(5), 34-39.
• Zhang, L., & Zheng, Y. (2021). Regulatory impacts on rebate programs and consumer rights. Journal of Consumer Policy, 44, 315-330.