Why Rebates?
How Manufacturers and Retailers Benefit from Rebates
If manufacturers and retailers intentionally make rebate collection a hassle for consumers, why do they offer them in the first place? Here’s why.
- PERCEIVED LOWER PRICE MEANS HIGHER SALES.
Customers tend to notice price increases and react negatively. Rebates offer retailers the benefit of giving customers a temporary deal or discount on an item to stimulate sales, while allowing them to maintain an item’s current price point. This method avoids the negative backlash that could be perceived with a price being lowered and then raised later.
- PRICE PROTECTION OF BETTER SELLING PRODUCTS.
Rebates allow companies to "price protect" certain product lines by being selective about which items or brands to discount. This allows retailers and manufacturers to move some product at lower cost while maintaining prices of successful models. A straight price reduction on some models would have a domino effect on all products in a line.
- ACCOUNTING ADVANTAGE.
During the turnaround time, the company can earn interest on the money. If the turnaround time crosses into the next fiscal year or quarter, a rebate offer can inflate sales in the current period, and not have to be accounted for until the next period. This gives companies an accounting advantage with their projections.
- LOWER REBATE REDEMPTIONS LEAD TO HIGHER PROFITS.
It obviously works in a company’s favor for customers not to redeem rebates. Most customers will not mail in the rebate coupons – thus giving the manufacturer/retailer a higher profit.
