How Does a Rebate Work?

A rebate, usually described as a mail-in rebate, is a type of marketing promotion that is very common in some industries. It’s been widely used by personal electronics retailers and car dealerships.

The point of a rebate, from the marketer’s standpoint, is to advertise a lower price than what the customer will actually have to pay at the point of sale. There are other benefits to the marketer, which I will break down later in the post. But essentially, a company can market a product for $500, after the rebate. But the customer pays $700 to purchase the product and then must perform a certain action, usually filling out a card and mailing it into the company, to receive $200 back on their purchase.

The dirty little secret about rebates is that only about half of customers ever actually submit the mail-in rebate. That means that even though you are marketing a product at $500, you are making about $600 per purchase (half pay $700, half pay $500).

In addition to the benefits already discussed for marketers, here are a few additional opportunities rebates offer companies:

·         You can earn interest on the money received in the time period between the purchase and the time the rebate must be paid out.

·         You can use information collected on mail-in rebate cards to build your customer database.

·         Rebates give consumers a sense of getting more for their money, because they see the full price value is that much higher than what they will actually end up paying (after the rebate).

Think about how you might use a rebate offer at your company.