The Big Business of Mail-In Rebates

Many of you are in the midst of (and the most diligent of you have already completed!) your holiday shopping, so you have likely encountered one or more “mail-in rebate” offers which caught your discriminating eye.  If not, you are in the minority, as one source estimates over $8 billion of rebates were issued to American households in 2010.

Mail-in rebates can be quite generous at times and may factor into your decision to (i) buy, (ii) buy now (as opposed to buying later at a higher price), and/or (iii) buy one brand or product over another.  With the current state of the economy, these incentives are more valuable now than ever before.  This, of course, is one of the most obvious intended purposes of mail-in rebates.  Manufacturers use mail-in rebates to influence consumer behavior by effectively lowering the price of a product.

From the consumers’ standpoint, we would love to receive instant rebates and avoid altogether the hassle of the mail-in part.  But mail-in rebates provide manufacturers with many other important uses and purposes, which explain their continued use.  For example:

  • Personal information – All mail-in rebate forms require disclosure of personal information, which are used by the manufacturer in a number of ways, such as data mining.
  • Breakage and slippage – Breakage is the failure of a consumer to submit a rebate, while slippage is the failure to cash the rebate checks eventually issued.  In either case, the manufacturer realizes an economic windfall because (i) you have purchased its product (itself a “win” for the manufacturer), and (ii) paid full-price for that product.
  • Interest-free loan – As rebate checks typically are issued weeks, if not months, after a rebate form is submitted, the manufacturer enjoys unfettered use of this money during this time.  A $25, $50, or $100 mail-in rebate may not amount to much for a particular consumer, but 100,000 such rebates amounts to millions of dollars which the manufacturer has essentially borrowed from the consuming public for months … interest free!

Some states have created legislation to protect consumers from misleading advertisements which are sometimes contained in mail-in rebates.  For example, in California, “the price actually paid to the person selling the item [must be] clearly and conspicuously advertised along with the final price with the coupon.”  (Cal. Bus. & Prof. Code Section 17701.5)

Connecticut has gone farther.  There, it is illegal to “[a]dvertise the availability of any type of rebate by displaying the net price of the advertised item in the advertisement, unless the amount of the rebate is provided to the consumer by the retailer at the time of purchase of the advertised item [i.e., instant rebate].”  (Conn. Agencies Reg. Section 42-110b-19(e))

Many states have attempted to regulate the time within which rebate checks must be issued (e.g., within 15 or 30 days), simplifying the process, or banning the practice altogether.  The industry has also taken steps to be more “user-friendly” by offering online rebate filing and tracking, and offering payment options such as PayPal and loaded debit cards.

Consumer advocates warn, however, that a complete prohibition on mail-in rebates would harm consumers.  This is true because, as stated previously, there are compelling reasons other than influencing consumer behavior for providing these rebates.  If mail-in rebates are prohibited altogether, manufacturers will almost certainly reduce the frequency and/or the value of rebates.

This exchange between consumers and manufacturers thus reflects a compromise – I’ll jump through your hoops if you promise to give me cash.  For consumers and manufacturers alike, it’s a small price to pay to help stay afloat in these challenging times.

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