REBATE RUNAROUND 2
The Great Rebate Runaround
Consumer product manufacturers offer an estimated $6 billion worth of rebates annually,
40% of which are never redeemed by customers (Simchi-Levi et al., 2021). The disparity is
partly attributed to customer behavior, but there is also a part where the manufacturers are
thought to make rebate redemption difficult to discourage consumers purposely. Unclaimed
rebates are considered the manufacturer's free money because it has yet to pay it out to the
consumer. Customer complaints have risen over the years as some feel the redemption process is
unfair, leading to legislators pushing for regulation. Retailers like Staples have stated that rebate
problems have been their customers' primary complaint.
Customized Pricing
Customized pricing can be most easily defined as customers paying different prices for
the same product (Simchi-Levi et al., 2021). A component also considers the customer’s
willingness to pay a specific price for the product versus the seller’s reserve price (Kadiyala et
al., 2022). Customized pricing is widespread in automotive sales; for example, one customer
may be savvier and negotiate a lower price and auto loan interest rate than another. Kadiyala et
al. (2020) stated that customized pricing typically has two pricing strategies: an initial price and
observable characteristics like credit scores. Regarding rebates, there is an initial price and rebate
savings. Some product prices are advertised with the after-rebate price. The second factor is the
customer’s action to file the rebate form. A customer who does not file the rebate could be
considered to be willing to pay the total price.
Rebates vs. Wholesale Pricing
Manufacturers may prefer rebates over wholesale pricing out of more factors than the
product's price. Price fairness, perceived value, and perceived quality can influence a customer’s
REBATE RUNAROUND 3
perception of satisfaction with the brand's quality (Konuk, 2019). For example, if Samsung
prices a TV at $2,000 and offers an $800 rebate, the customer will perceive they got a great deal
on an expensive TV they only paid $1,200 for. If Samsung offered that same television for
$1,200, the customer would think they just bought a $1,200 television. The wholesale pricing
does not satisfy any of the other factors. Price can affect a brand’s perceived quality. Quality can
be further separated into objective and subjective. Objective quality is the actual technical
excellence of the good. Subjective quality is based on the customer’s opinion of the product and
brand, and they are willing to pay a higher price for quality (Konuk, 2019). Rebates allow the
manufacturer to offer the customer a “good deal” on a high-quality product, whereas selling the
same product at a lower wholesale price lowers the customer’s perception of the brand’s quality
and value.
Why is Best Buy Eliminating Rebates instead of the Manufacturers?
Customer satisfaction is the most significant reason why retailers would eliminate
rebates. The manufacturer may benefit directly from unclaimed rebates and even share some of
that money with its retailers, but there are other costs to consider. The case study illustrates that
Staple’s primary customer complaint for years was the mail-in rebates (Simchi-Levi et al., 2021).
Staples had to adopt the Easy Rebates system so their customers could process the refunds
online. Although it is not stated in the study, it can be assumed that Staples took on the cost of
implementing that system, not the manufacturer. Customer satisfaction and service quality
directly impact customer loyalty, retention, word-of-mouth advertising, and perceived quality
(Slack & Singh, 2020). When a Best Buy customer has a problem with a Samsung rebate, they
may perceive Best Buy as being part of the problem. This can affect customers' willingness to
shop at Best Buy for other products and go elsewhere.
REBATE RUNAROUND 4
Conclusion
Up to 40% of $6 billion of mail-in rebates go unclaimed annually, a significant
manufacturer profit. This profit comes at the cost of customer dissatisfaction and frustration. A
simplistic solution is to sell the products at the post-rebate price. However, this may lower the
customer’s perception of the brand’s quality and value. An alternative solution to the mail-in
rebate is the instant rebate. An instant rebate could be applied at the register at the time of
purchase. This could eliminate rebate-related customer complaints while improving perceived
quality and value. There could also be some added benefits to consider for future research. For
example, a customer may be willing to purchase a product with a $50 instant rebate over a $100
mail-in rebate. Manufacturers and retailers should work together to determine the best balance of
pricing and rebates that customers would accept while maintaining customer satisfaction,
perceived quality, and perceived value.
REBATE RUNAROUND 5
References
Chen, P., Liu, X., Wang, Q., & Zhou, P. (2022). The implications of competition on strategic
inventories considering manufacturer-to-consumer rebates. Omega (Oxford), 107,
102541. https://doi.org/10.1016/j.omega.2021.102541
Konuk, F. A. (2019). The influence of perceived food quality, price fairness, perceived value,
and satisfaction on customers’ revisit and word-of-mouth intentions towards organic food
restaurants. Journal of Retailing and Consumer Services, 50, 103-110.
https://doi.org/10.1016/j.jretconser.2019.05.005
Simchi-Levi, D., Kaminsky, P., & Simchi-Levi, E. (2021).NDesigning and managing the supply
chain: Concepts, strategies, and case studiesN(4th ed.). New York, NY: Richard D. Irwin,
Inc.
Slack, N. J., & Singh, G. (2020). The effect of service quality on customer satisfaction and
loyalty and the mediating role of customer satisfaction: Supermarkets in Fiji. TQM
Journal, 32(3), 543-558. https://doi.org/10.1108/TQM-07-2019-0187
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