DESIGNING AND MANAGING THE SUPPLY CHAIN
The Great Rebate Runaround
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Ah, the holiday shopping season: Santa Claus, reindeer-and rebate hell. Those annoying mail-in offers are everywhere these days. Shoppers hate collecting all the paperwork, filling out the forms, and mailing it all in to claim their $10 or $100. But no matter how annoying rebates are for consumers, the country's retailers and manufacturers love them.
From PC powerhouse Dell to national chains Circuit City and OfficeMax to the Listerine mouthwash sold at Rite Aid drugstores, rebates are proliferating. Nearly one-third of all computer gear is now sold with some form of rebate, along with more than 20% of digital cameras, camcorders, and LCD TVs, says market researcher NPD Group.
Hal Stinchfield, a 30-year veteran of the rebate business, calculates that some 400 million rebates are offered each year. Their total face value: $6 billion, he estimates. Office-products retailer Staples says it and its vendors alone pay $3.5 million in rebates each week.
TAX ON THE DISORGANIZED
Why the rage for rebates? The industry's open secret is that fully 40% of all rebates never get redeemed because consumers fail to apply for them or their applications are rejected, estimates Peter S. Kastner, a director of consulting firm Vericours. That translates into more than $2 billion of extra revenue for retailers and their suppliers each year. What rebates do is get consumers to focus on the discounted price of a product, then buy it at full price.
"The game is obviously that anything less than 100% redemption is free money," says Paula Rosenblum, director of retail research at consulting firm Aberdeen Group.
The impact on a company's bottom line can be startling. Consider TiVo. The company caught Wall Street off guard by sharply reducing its first-quarter loss to $857,000, from $9.1 million in the same period