Rebates

Please read “The Great Rebate Runaround” case in your textbook and answer the following questions:

1. This case describes one reason manufacturers might want to offer rebates rather than decrease wholesale price. Explain why this can be viewed as an example of customized pricing.

Given that approximately 40% of all rebates never get redeemed, it’s arguably in the manufacture’s best financial interest to offer the rebate as opposed to decreasing the price of the product from the outset. The text suggests that because more than half of consumers will never redeem the rebate, more than $2 billion of extra revenue for retailers and their suppliers each year is generated.

Offering a rebate can be viewed as an example of customized pricing. Those individuals that do not redeem the rebate are likely too busy, too lazy or too forgetful to apply for the rebate or, it could be that the consumer is comfortable with the price they’ve paid for the product prior to redeeming the rebate. Whatever the reason, some individuals either do not or choose not to redeem the rebate. On the other hand, those who may be more frivolous, cost conscience or unable to pay the full price will redeem the rebate and as a result, pay a reduced purchase price for the product. This is an example of customized pricing because the bottom line product price is dependent upon the action or inaction of the consumer and arguably, their ability to pay.

2. Even if all rebates were redeemed, why might manufacturers still want to offer rebates rather than decrease wholesale prices?

Even if all rebates were, in fact, redeemed, it may still be in the manufacture’s best interest to offer the rebate versus decreasing the wholesale/purchase price from the outset. Offering the rebate and selling the product at a higher (initial) price allows the manufacturer to, on their books, have higher revenues, increased cash flow and larger profits for their shareholders which will arguably drive up the...