*NEWS*No Longer is the Rebate in the Mail

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*NEWS*No Longer is the Rebate in the Mail

 user 2005-04-22 at 11:09:00 am Views: 64
  • #9049

    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.