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Rebates, Redemptions and Breakage: Some Things you Should Know About Mail-in Rebates
It’s hard to make broad generalizations about rebate programs because most organizations refuse to share their data with researchers or peers — if they even have good data. As a result, many marketers base decisions on a set of widespread, but empirically false assumptions:
- Larger rebates increase both sales and redemption rates
- Increasing effort requirements decrease redemption rates
- Shorter redemption deadlines decrease the redemption rate
Two recent studies, by the Promotion Marketing Association (PMA) and the University of Florida, debunk the conventional wisdom for each of the broadly-held assumptions above.
Larger rebates increase both sales and redemption rates
While rebate redemptions are influenced by the absolute size of the rebate, incremental sales are driven by rebates that are large relative to the before-rebate price of the item. Think about this for a minute and you realize that the table at Fry’s selling software “free after rebate” is not simply moving obsolete inventory. A selling price of $29 with a $29 rebate is a much more profitable sales promotion for both the retailer and the publisher than dropping the price to $19 or $9 without a rebate.
Increasing effort requirements decrease redemption rates
While companies have legitimately added requirements to combat rebate fraud, the feeling is that this has a beneficial side-effect of lowering redemption rates. But the University of Florida study found that the harder consumers had to work to get a rebate, the more likely they were to submit a claim.
Shorter redemption deadlines decrease redemption rates
Shorter deadlines are actually correlated with higher redemption rates. Apparently, procrastination is the budget-driven marketer’s friend. The highest redemption rates in both studies were single-day offers.
What does all this mean to marketing professionals?
- It is important to understand the consumer dynamics of rebates for your customers. While there is some scholarship around rebates, misconceptions abound as few companies share data or participate in research.
- Measure what you want to influence. In most cases, rebates are intended to drive incremental sales, so it is important to measure new customers and not simply aggregate sales. Spend the time and effort to understand who is buying your products and why.
- Rebate redemptions are expensive, but so is customer dissatisfaction. Once again, understanding the customer buying process will assist you in developing rebate programs that drive purchase behavior, while maintaining reasonable redemption rates.
Written by Bruce La Fetra
Tags: Marketing
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