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With changes in technology and with all the talk about retailer and consumer backlash the question of ‘are mail-in rebates dead’ on the surface appears as be a ‘yes’. ..Or are they?
Recently I went to buy wine for a family reunion when I was visiting another part of the U.S. A. Immediately a bottle topper and a POS display, featuring a mail-in rebate offer, attracted my attention.
Being familiar with the brand, the purchase of 6 bottles to receive a $12 rebate was a done deal. As an added bonus the retailer had a policy of providing 10% off the purchase price when customers bought a minimum of 6 bottles. Double dipping promotional offers makes a happy customer!
Like so many others, I almost missed the deadline for mailing in the required recipes and request form. However, I prevailed over procrastination and invested the precious 2 minutes necessary to fill in the form, attach receipts, address and stamp an envelope and leave it for the mail carrier.
I had not seen one of these mail-in rebates for wine in the state that I live in for awhile, if ever. Knowing that rebate and liquor laws differ by state, I decided to dig in to the current “state” of the mail-in rebate. My findings are that rebate offers have evolved along with consumer perceptions and marketing objectives in our tech driven society.
How Rebate Offers Work
On a basic level a consumer rebate is monetary reward for buying a promoted product, providing you take some type of effort to receive the reward. Rebate offers differ from coupons because the cost savings is received after, rather than before, purchase.
Consumers use technology to investigate, evaluate and purchase products. It is estimated that up to 40% of consumers change their minds once they decided on a purchase due to something they heard or saw. This is where sales people and sales promotional offers make a difference.
The Breakage Factor Game
Breakage is a term used for purchasers who fail to redeem the rebate offer. Managing the fine line where percentages of consumers consider the value of the rebate to be a part of the purchase price vs. not redeeming it at all is the science of establishing a breakage factor percentage.
Psychologists have proven that ‘people’s probability estimates of performing future actions can be manipulated with little impact on the likelihood of actually performing the action’.
We all have been there. Wishfully thinking about a future activity without considering potential obstacles, which interfere with our best-laid plans.
When the value of the reward is increased, sales and rebate redemption increases follow. It stands to reason that the higher the rebate amount, the more consumers consider it related to the bottom-line purchase price, and they are motivated to take action.
Testing the breakage factor percentage for your offer is extremely important. When developing a sales promotional plan and projecting a ROI for the promotional event be sure to first test how your customers will respond. Prepare P&L statements based on various redemption models. Working with one retailer on a co-op basis is an example of a mail-in rebate test scenario.
Many consumers, and some retailers, have become to despise the breakage factor associated with the mail-in rebate. They want the discount at the time of purchase, or with little effort on the part of the consumer. This has lead many retailers to disallow manufacturers to offer mail-in rebates at their stores, or have required that manufacturers offer an instant rebate that is delivered at the point-of-sale.
Types of Rebate Offers
While the question of ‘what is a rebate offer’ has not changed, the marketing objectives rebates now achieve, and the processing technology for rebate redemption has become more sophisticated.
When addressing rebate offer types there is a clarification to be made between offer and redemption definitions. Essentially as rebate offers go there are two types.
Two Rebate Offer Types
- The first method of rebate development is offering reward as a percentage of the purchase price.
Research indicates that this practice is very effective at increasing sales and redemption rates. This approach has been proven to increase sales by over 90% and redemption rates by over 85% (McLaughlin 2002).
Be forewarned! It is so effective that a 2002 study of digital scanner manufactures indicated that large percentage rebates offered in a competitive sales environment had devastating effects. Approximately 60% of the competing firms went bankrupt due to abnormally high redemption rates.
If you want to use the percentage of purchase price rebate offer tactic, be sure to establish sophisticated pricing models to balance the equation.
- The second method is establishing a rebate reward of an absolute value.
For example the price of an item may vary by retailer, but the manufacturers rebate remains a consistent amount, such as a $100 rebate offer. This technique has been more controllable when anticipating redemption rates. Testing should be done to identify the sweet spot where purchase action and breakage can be mathematically anticipated.
Rebates Redemption Types
Here is where technology has changed the field. Mail-In Rebates are a sales promotion technique to increase sales without reducing brand value.
With rebate offers, the manufacturer is not reducing their price, which may be perceived as discounting their brand. Instead they offer an incentive to buy, after purchase. Breakage is often factored into the offer to motivate consumers to take purchase-action, with limited risk to the manufacturer.
Technology has changed the rebate redemption industry. When creating a rebate offer redemption process manufacturers now engage the consumer during the retailer checkout process or online using computers and SmartPhones.
- Instant rebates occur at checkout. Popular in the electronics field, consumers are hit with the item’s price, the limited time instant rebate offer and the knowledge the rebate amount will be taken off the at check-out. Here the offer is more about keeping the price high, and maintaining the integrity of the brand, while moving discounted product. This is sometimes done in conjunction with a specific retailer as part of co-op advertising, POS, of other marketing arrangement.
- Online rebates offer the rebate redemption form online. Proof-of-purchase may be in the form of a receipt number, scanned receipts, UPC codes or a combination of these.
- SmartPhones have enabled the consumer’s redemption efforts. They are now able to interact with the brand at the time of purchase, or soon after, making sure they get and send in all required documentation. Advanced marketers have been able to take advantage of OCR technology to digitally review data and even deposit a check directly into the consumer’s bank account.
- App promotional sites such as Shopmium, Checkout 51 and Ibotta motivate consumers to seek out featured brands to accumulate rebate dollars deposited directly into their bank account.
A Brave New World of Rebate Objectives
Rebate offers are effective in building awareness and sales. With technology the objectives of a rebate event can now be used to:
- Develop a database of customers,
- Create loyalty programs,
- Model customer behavior using collected data,
- Proactively develop retailer co-op marketing campaigns
- Develop partner-marketing alliances.
Combining data collected from a rebate offer with a CRM system enables manufactures and retailers to enhance the customer experience, track the customer lifetime value and enhance the customer’s relationship with the brand. While breakage may be reduced using technology to instantly or quickly redeem rebate offers, the benefits of data collection and analytics may prove to be a good long-term investment.
