Who doesn’t like a good deal?  A recent advertisement marketed an $ 800 computer for $300.  What was the catch?  You had to go through the process of getting a $ 500 rebate to make up the difference.  It is human nature to focus on that net sales price.  It can be extremely tempting.  However, you have to be very careful.

Rebating is a very powerful and profitable sales tool used by companies.  This Christmas season, it appears that the use of rebates is extremely high (just by observation).  The rebate is used by the company to lure you into the store and sell product.  There are many business reasons why companies use rebates.

Profiting from Human Error

We can talk about the marketing reasons and the convenience of not adjusting prices during promotional periods.  I would suggest that the real reason is the redemption rate.  It is estimated that only 50 to 60% of rebates are even redeemed.  That is a pretty good profit.  In 2005, TIVO had a promotion where nearly ½ of the 100,000 subscribers did not redeem their rebates.  That ended up being a $ 5,000,000 profit for TIVO.

Just like the credit industry, retailers rely on making money from consumer mistakes.  You know what happens. You buy a product using a rebate.  You focus on that net number and not what you actually paid.  You know that you are going to get the money back.  You get home and take it out of the box.  Then you get wrapped up in the instant gratification moment you are having with your new product.

With all good intentions, you pile up the rebate paperwork and conclude you will get it to it later.  Ultimately, you become one of those 50 to 60% of consumers who lose out on that money because the rebate never gets filed or you threw away a key piece of information needed to get the rebate.

Retail Trickery

The worst of it is the process.  Retailers make it almost impossible to get these rebates redeemed.  They give you a long laundry list of items and paperwork to have to be completed.  One small mistake kicks you out of the process.  Many retailers send the check back in envelopes that look like junk mail.  As a result, it gets thrown into file 13.

The Wall Street Journal ran a study on rebates.  Out of five rebates, they only successfully received payment for one.  Then you have your dishonest retailers that make redemption impossible or do not honor the rebates.  In those situations, most consumers just give up.

So, if the rebate temptation is too much to bear, make sure you follow these tips:

1. Read the instructions multiple times
2. Fill out your rebate the first thing after the purchase – Don’t procrastinate.
3. Get organized – Put a file together, make copies, and have the toll-free number handy.  Make a note to follow up in six week intervals.  Twelve weeks is the average delivery time.
4. Know your deadlines – There is a deadline for submission and sometimes a deadline for resubmission following the correction of errors.  Make sure that you know those dates ahead of time.
5. Know the difference between the Universal Product Code (has to be cut from the box) and the proof of purchase.  Many times the consumer sends the wrong one.
6. Know whether they want a copy of the receipt or the original receipt.
7. Determine the cost of your time – Determine if it is worth going through this process for a small rebate.

Above all, don’t become a rebate statistic.  Rebates can work great and save you a lot of money if done the right way.

All contents copyright © 2007 Prudent Money and Bob Brooks. All rights reserved.