NO LONGER IS THE REBATE IN THE MAIL
NO LONGER IS THE REBATE IN THE MAIL
2005-04-22 at 11:06:00 am #9048
No Longer is the Rebate in the Mail
Best Buy recently announced that it will phase out the use of mail-in rebates
across its US retail locations over the next two years. The retailer cited its
increased focus on customer satisfaction as the primary reason. On a similar
note, the Federal Trade Commission (FTC) ruled that CompUSA is ultimately
responsible for the advertised mail-in rebates that QPS, Inc., a computer
peripherals manufacturer, did not fulfill when it filed for bankruptcy. Given
Best Buy’s strength in the retail channel and the ruling’s implied ramifications
for resellers, we will likely see the number of mail-in rebate opportunities
decrease throughout the retail channel.
Best Buy has the market prowess to withstand, even dictate, significant
changes in the retail channel. Subsequently, its decision to drop mail-in
rebates will impact the entire promotional landscape–to the detriment of
manufacturers and the benefit of consumers. If given the choice between a gift
card, instant rebate, or mail-in rebate, the consumer will typically choose the
mail-in rebate last because its associated waiting period is frustrating. In
contrast, manufacturers would choose the mail-in rebate first because its
paperwork both provides invaluable consumer data and inhibits the majority of
consumers from submitting the refund request, thus providing a profit cushion.
Best Buy, which offers its own mail-in rebates, has decided that the possible
benefits of offering mail-in rebates do not outweigh the potential damage to its
image or frustration for its customers.
Following Best Buy’s lead, however, poses a dilemma for retailers and
manufacturers alike. Both now wonder if the retail channel will have a unified
promotional offering, or a divided one. Should some retailers choose to continue
advertising mail-in rebates, then those retailers that do not advertise mail-in
rebates will face a series of challenges. Manufacturers will have to find a new
way to promote their products at those retailers that do not support mail-in
rebates. Likewise, retailers that do not advertise mail-in rebates will be
hard-pressed to maintain competitive pricing on the products that would have
previously been discounted with a mail-in rebate. In highly competitive markets,
these mail-in rebates can discount advertised prices by $100 or more. Such a
price discrepancy would greatly lower unit sales in the retail channel. To
compete effectively, the retailer would have to offer an alternative promotion
with the same value to the consumer. Unfortunately, that would mean increasing
the cost to the manufacturer via market development funds.
Retailers that choose to support mail-in rebates would also face challenges.
While manufacturers would support this decision, retailers would be liable for
the mail-in rebates that the manufacturer does not fulfill. In addition, Best
Buy’s new policy prioritizes the customers’ needs, adversely impacting the
retailers that continue to offer mail-in rebates. Consumers’ tolerance for
mail-in rebates will diminish as they realize instant gratification at Best Buy,
assuming that the promotional value was not decreased significantly when it was
translated from mail-in rebate to some other promotional form. The only way for
those retailers to offset consumers’ preference for instant rebates will be to
increase the value of the mail-in rebate, thereby increasing their own risk
should the manufacturer choose not to comply.
One market that will be greatly affected by Best Buy’s new policy is digital
cameras. Mail-in rebates (inclusive of retailer and manufacturer rebates) rose
6% from March 2004 to comprise 14% of all advertised promotions in March 2005.
This increase correlates to the shelf presence increase of bundled printer and
digital camera offerings and digital SLRs in the digital camera market. Mail-in
rebates on these products are often valued at $100 or more and are highly
promoted to lower the perceived cost to the consumer. It is because of this
reliance on mail-in rebates that these two market segments pose the greatest
challenge for manufacturers. The manufacturers of these products will have to
create other ways to increase product visibility, raise the average purchase
price, offer “total imaging” solutions and lower the perceived cost to
consumers. In a divided retail environment, retailers promoting the associated
rebates face significant risk, and retailers not promoting these rebates face
significantly higher price points.
Manufacturers in any competitive market are still apt to offer mail-in
rebates online, although that value to the consumer will have to be translated
in some other promotional form across the entire retail channel. A divided
retail environment creates more frustration than necessary for all parties
involved. By comprehensively translating the rebate across all retailers,
consumers can still get the same value as before, and manufacturers can still
sponsor key promotions and regulate pricing within the most competitive markets.
Manufacturers’ solutions will depend on their objectives. To provide the same
value to the consumer, manufacturers can offer instant rebates. To ensure large
savings for the consumer without decreasing the perceived value of the product,
manufacturers can offer retailer gift cards good for future purchases within a
select product line. Manufacturers can receive consumer data by offering free
gift promotions that require that the initial paperwork is completed in the
retail store. To offer co-sponsored bundles, manufacturers can collaboratively
increase their market development funds to the retailer.
The easiest solution for retailers is to follow Best Buy’s lead and stop
offering mail-in rebates. This would pressure manufacturers to offer alternative
promotions across the retail channel. A consistent promotional strategy across
the channel would help retailers stay competitively priced without requiring
additional funds from the manufacturers. Most importantly, a consistent
promotional strategy would ease the consumers’ buying decisions and support
future market growth in the retail channel.