REBATES

Rebates, widely known as refunds, are a popular tool used by businesses to promote their products and services. The term "rebate" derives from the Middle English rebaten, meaning "to deduct." Rebates are distinct from coupons and other forms of discounting in that they reimburse a customer for part of the purchase price after rather than at the time of sale. Rebating evolved in the latter half of the 20th century from the marketing technique of offering coupons, which had proved broadly successful. Rebates were initially offered by producers of grocery-store goods and subsequently by manufacturers of nonfood items. Currently, businesses making use of rebates are diverse and include the manufacturers of health and beauty aids, household supplies, small and large appliances, automobiles, wine and liquor, and computers. The cash amounts these companies offer their customers is similarly wide ranging and can be less than a dollar or as much as $50 or more, depending on the retail price and nature of the product being promoted.

The first step in rebating, as outlined by Susan J. Samtur in Cashing In at the Checkout, is for the manufacturer to issue an offer of a rebate to all who purchase its product; typically the offer expires after six to eight months. The purchaser then completes a form provided by the manufacturer and mails it—along with any other items the manufacturer may require, such as a cash-register receipt or the Universal Product Code (UPC) snipped from the packaging—to the address specified on the form.

Most commonly, the purchaser sends the rebate form and related ("proof of purchase") items not to the manufacturer but to one of several large clearinghouses hired by the manufacturer to handle these transactions—for instance, the Young America Corporation in Minnesota or the Nielson Clearing House in Texas. The clearinghouse then processes the form and sends the purchaser a check in the manufacturer's name, usually within four to eight weeks from the time the purchaser mails in the required information.

Companies use a number of means to get their rebate forms into the hands of customers. Many companies supply a pad of tear-off rebate forms to the stores selling their products; others print the form directly on the packaging or on a tag hanging from the merchandise; a few instruct the purchaser to write in for the form. To announce the rebate offer and distribute the forms, companies may also place advertisements in newspapers and magazines, utilize home mailers, and/or place ads in the myriad refunders' newsletters developed by consumers to avail themselves of these offers. In addition, companies frequently use television and radio advertisements to publicize their rebate promotions.

Rebating is highly attractive to consumers, offering a partial cash reimbursement for their purchases that is tax-free, since the Internal Revenue Service views rebates as a reduction in the price paid for a product, rather than as income. For manufacturers, rebating provides numerous advantages: it induces prospective customers to try their products; it boosts company sales and visibility; and it attracts interest from retailers, who often help promote the offer and expand the shelf space allotted to the manufacturer's goods accordingly. Rebate promotions can thus help a company increase its leverage with retailers and develop brand loyalty and repeat business among consumers over the long run—not just a one-time incentive to buy. This is most readily seen in seasonal industries such as that for small batteries. Battery industry sources estimate that 39 percent of their sales occur during the holiday season, so major battery manufacturers, including Rayovac, Duracell, and Panasonic, all announced ongoing rebate programs to extend from the holiday season into the spring and summer of 1997.

Indeed, a study conducted by United Marketing Services (UMS) found that participating in a rebate promotion makes customers better able to remember a product than is the case with other promotional methods. UMS also found the rate of consumer participation in rebate promotions to be on the rise. Despite this fact, consumer participation in rebating ranges from just 25 to 40 percent, and most participants request only two or three refunds per year. Hence, because the number of purchasers who actually request the refunds is relatively small, the dollar outlay in cash refunds for the manufacturer may be minimal in comparison with the sales and other benefits generated by the promotion.

Given the low rate of customer participation in rebate programs, some companies have neglected rebate requests, or even offered fraudulent rebate schemes. Many consumer complaints arose in 1997 when several computer companies, including CompUSA and Iomega, dedicated too few resources to rebate reimbursals, causing delays in rebate payments.

In the mid-1990s, industries that had traditionally made use of rebates to promote their products began to make use of new techniques. General Motors Corp., for instance, shifted $30 million in resources from its rebate programs to advertising and marketing initiatives in 1996. Even as traditional rebating seemed to lose some of its appeal, however, several innovative offshoots of rebating began to emerge. Among these were the linking of customer purchases to rebates in the form of contributions to retirement plans, tuition costs, and air-mileage credits. Other variations on rebate promotions include offering to refund a fixed percentage of the purchase price, rather than a set dollar amount; providing a "bounceback coupon" that can be redeemed on a later purchase; and making contributions to charitable causes based on customer participation in the promotion. Perhaps the most popular recent variation on rebating is the cobranded credit card, issued by a manufacturer and allowing its users to dedicate a percentage of their credit card purchases toward the purchase of the issuing companies products. Many large companies, including General Motors, Ford, Mobil, Texaco, and General Electric, adopted cobranded credit cards by the end of 1996.

The resiliency of traditional rebating and its future as a marketing and promotion tool remains undoubted, as even companies such as General Motors, which had appeared ready to abandon its old-line rebate programs in 1996, reinitiated them in the fall of 1998.