The Great Debate Runaround Case

The Great Rebate Runaround

Logistics

Proc 5850 OA SU 2015

Prof. Stephen Lee

The debate over the use of rebates has been under scrutiny for quite some time. Businesses use rebates to entice consumers to purchase products resulting in an increase in customer demand, while manufactures find rebates useful because it gives retailers a reason to increase their order quantity to accommodate the excess demand from customers. According to the article rebates have lost some popularity, but are still being offered as customers enjoy the chance to purchase at a less than full price and retailers enjoy the chance to sell items at full price when customers fail to redeem their rebates.

According to the case it’s no secret that 40% of all rebates never get redeemed because customers fail to apply for them or their applications are rejected. That 40% explains why retailers and their manufacturers receive more than $2 billion per year. Rebates get customers buy a product at full price with intentions of receiving the discounted price of a product at a later time, however consumer “breakage” and “slippage” just equals free money for retailers and manufacturers. More and more research is pointing towards manufacturers relying on rebate programs in hopes of consumer slippage. Another reason manufactures offer rebates is because it offers an alternative to reducing wholesale price. This can be viewed as customized pricing because it allows a manufacture to set whatever price they want through rebate offers, but without affecting the market by decreasing wholesale price. This cuts down on competition and allows the manufacture to appear as the better deal. Not to mention that even if consumers do in fact redeem their rebates, manufactures still experience an increase in demand as customers demand would increase as they would see increased savings from the rebates. This increase in demand equals an increase in revenue for manufactures, so it’s win-win for all parties.

However,...