Do you know your rebate breakage from your slipage? Interesting article on rebates [Get this deal]
from deals site SlickDeals
http://www.businessweek.com/bwdaily/dnflash/nov2005/nf20051123_4158_db016.htm
Breakage - where customer doesnt file the rebate (only 40% do)
Slipage - rebate checks that are never cashed.
Its a long article...heres about half of it...Highlights.
"The Great Rebate Runaround
Consumers hate the hassles and hoops. Companies love them unredeemed. Now regulators are wading in
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 countrys retailers and manufacturers love them. From PC powerhouse Dell (DELL ) to national chains Circuit City (CC ) and OfficeMax (OMX ) to the Listerine mouthwash sold at Rite Aid (RAD ) 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 (SPLS ) says it and its vendors alone pay $3.5 million in rebates each week.
TAX ON THE DISORGANIZED. Why the rage for rebates? The industrys 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 companys bottom line can be startling. Consider TiVo (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 last year. One reason: About 50,000 of TiVos 104,000 new subscribers failed to redeem mail-in rebate offers, reducing the companys expected rebate expense by $5 million. TiVo says it generally sees lower redemption rates during the Christmas shopping season, when consumers may be too distracted to file for rebates on time.
Credit this bonanza for retailers and suppliers partly to human nature. Many consumers are just too lazy, forgetful, or busy to apply for rebates: Call it a tax on the disorganized. Others think the 50 cents, $50 -- or even $200 -- is just not worth the hassle of collecting.
...But many consumers -- and state and federal authorities -- suspect that companies design the rules to keep redemption rates down. They say companies count on complex rules, filing periods of as little as a week, repeated requests for copies of receipts, and long delays in sending out checks to discourage consumers from even attempting to retrieve their money. When the check does arrive, it sometimes gets tossed in the trash because it looks like junk mail.
"BREAKAGE" AND "SLIPPAGE." Citing privacy restrictions, TiVo officials declined to discuss the case. But the company says it regrets any inconvenience and recently changed its rebate process to include a printable sign-up form at tivo.com to cut down on handwriting errors. Parago also declined to discuss the incident but said errors are rare among the "tens of millions" of rebates it processes each year.
Indeed, processors and companies offering rebates insist that there is no intentional effort to deny them, a move that Stinchfield, who is the chief executive of Orono (Minn.) consulting firm Promotional Marketing Insights, says would be akin to "brand suicide." Rather, companies say, the rules are aimed at stopping fraud. Rebate processors wont provide estimates for the amount of fraud they encounter, but Young America Corp., the nations largest processor, says it now monitors 10,000 addresses suspected of submitting bogus rebates.
The quest for buyers who dont end up collecting a rebate has spawned special industry lingo. Purchases by consumers who never file for their rebates are called "breakage." Wireless companies that pay 100% rebates on some cell phones, for example, rely in part on "breakage" to make money. Rebate checks that are never cashed are called "slippage."
COMPLAINTS HAVE SOARED. One processor, TCA Fulfillment Services in New Rochelle, N.Y., published a "Rebate Redemption Guide" for its corporate customers several years ago. It cited the low redemption rates that companies could expect after hiring TCA: just 10% for a $10 rebate on a $100 product, and just 35% for a $50 rebate on a $200 product. "If you are using another fulfillment company, add 20% to these redemption rates," says the chart.
Lewisville (Tex.)-based Parago bought TCAs customer list last December and disavows that guide. It says it cant estimate current rates because clients dont provide the company with sales data. TCA founder Frank Giordano did not respond to several calls and a letter requesting comment.
With more companies plugging rebates -- and more dollars at stake for consumers -- complaints have soared. Gripes filed with the Council of Better Business Bureaus have tripled since 2001, from 964 to 3,641 last year. But processors say that number is still tiny compared with the vast number of claims they handle.....
"NO INCENTIVE." Some regulators are using novel tactics. On Nov. 7, Massachusetts officials filed suit against Young America to demand that it submit to an audit of $43 million in uncashed rebate checks. The company, headquartered in Young America, Minn., kept that amount of money from 1995 to mid-2002 in return for charging its clients lower fees, it says. Massachusetts officials believe that keeping uncashed checks could be an incentive to deny legitimate redemption claims. "Its almost like the old bait and switch," says Massachusetts State Treasurer Timothy P. Cahill.
Young America is fighting back. In written responses to questions from BusinessWeek, CEO Roger D. Andersen stands by the companys policy and says retailers and suppliers sometimes prefer that it keep uncashed checks. That keeps Young America from having to send them back and then turn around and collect its fee from clients.
"Young America receives the same fees whether a submission is valid or invalid," he says. "We have no incentive to increase invalid rates."
UNIFORM RULES. The backlash against mail-in rebates is pushing some companies to drop them. Best Buy (BBY) plans to phase them out in two years. At Staples, mail-in rebates were the No.1 customer complaint for years, says Jim Sherlock, director of sales and merchandising. So a year ago, the Framingham (Mass.) company switched to an online system called EasyRebates that customers use to file for rebates and track their progress....
Click on the link at the top of the page for the entire article (Yes, theres more!)
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