Eradicate Rebates

Last Updated Aug 4, 2008 1:08 PM EDT

Money envelopeI've long had a hunch that companies can do themselves more harm than good in the long run by using rebate programs to stimulate purchasing. So the story of Vastech, which is paying a $10,000 settlement with the Santa Clara County DA for not paying hundreds of rebates on products sold through Fry's Electronics, was simply confirmation.
The district attorney's office launched an investigation into Vastech, Inc. after the Mercury News reported the company had tossed more than 1,300 unopened rebate requests into a dumpster near its San Jose office. Matt Harris, a deputy district attorney, said Vastech had failed to pay about 2,500 rebates, valued at $3.50 each. Vastech, a wholesaler of electronic parts and accessories now located in Sunnyvale, has since honored those rebates at a cost of about $8,500. The consumer protection lawsuit was filed and settled Tuesday, and the district attorney's office has already received a check.
Vastech is an extreme example of what seems to be a pattern, particularly in the high tech industry: Deliberately designing rebate programs to frustrate consumers so they won't get their money. The Wall Street Journal ran some tests of various rebates last year, and the results were bad. Granted, these are anecdotes, but a more comprehensive view is no more satisfying. In the Handbook of Marketing, Barton Weitz and Robin Wensley note that the phenomenon of a consumer buying a product but not turning in the rebate paperwork, called slippage, has received "virtually no research attention," but has been reported as high as 90 percent for software products. According to Sridhar Moorthy, marketing professor at the University of Toronto, the redemption rate on rebates that he's looked at has been one or two percent, with the maximum being 50 percent.

My guess is that not turning in rebate paperwork includes a good many people who do turn in the paperwork, but who make some little mistake -- like not hand-delivering the forms to the company so it cannot accidentally toss them with the rest of that sack of mail.

I'll admit that there are some well-run rebate programs. I remember trying to use one at Staples that required me to go to a web site, provide the transaction number, and fill out a form online. It was easy and I actually got the rebate check after a few weeks. So why do so many high tech companies insist on actual paper and surface mail and the clipped UPC? Because lots can go wrong, the consumer can get frustrated, and there is no easy way to track the processing. The vendor gets to keep that incentive and, by having the consumer mangle the box, ensures the impossibility of returning the product. Or, as Moorthy said:

And the onus is on the consumer now because they've already paid the regular price when they bought the product and if they don't turn in the rebate they're going to miss out on the deal. They will, in fact, end up paying the full price. So what happens then, from the manufacturer's point of view, they're having their cake and eating it, too. They've gotten you to buy the product because you thought you would redeem the rebate. Then once you went home, you forgot about the rebate, you became too busy or you found that all the requirements that you're supposed to fill out actually quite difficult for you to do, so you don't turn in the rebate and now they got your sale at full price and you bought the product as well. -- I think people are becoming more skeptical of them -- People are becoming more sensitive to the amount of work they have to do. So I think what you're seeing is a very rational reaction on the part of the consumer that they're realizing that these deals are not as attractive as they're made out to be and they have to be a little bit more vigilant as a consumer.
When you mess with the buyer, you almost guarantee that you've lost the person and created a network of ill will. I know I've largely sworn off on some major companies that seemed to play games when I filed for my rebates. If someone simply forgets to use the rebate in time, or gets discouraged, I'd be surprised if there wasn't a lingering resentment of the vendor, particularly the next time the person sees that store come-on of a sale price with the word rebate in small print.

But the idiot CEO, CFO, or CMO who think this practice is clever doesn't look at the longer term impact on the company. Consider how much it costs to acquire a customer in the first place --it's probably a literal order or two of magnitude greater than the pittance the company pockets. There must be some ways of marketing that don't require spending several hundred dollars to get $50 back.

Money envelope image via stock.xchng user pseudoxx, permission via site standard license.

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    Erik Sherman is a widely published writer and editor who also does select ghosting and corporate work. The views expressed in this column belong to Sherman and do not represent the views of CBS Interactive. Follow him on Twitter at @ErikSherman or on Facebook.