Case Study 3 Rebate

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.

Customized pricing is defined as: identical products are delivered, regardless of time or situation, to different consumers at different prices (Obermiller, Arnesen, & Cohen, 2012). The art of standardizing pricing is a recent practice. Before the Industrial Revolution, manufacturers sold their goods based on the agreed upon price between themselves and their clients. However, this changed with the onset of the Industrial Revolution. As manufacturers churned out more and more goods at a cheaper and faster rate, retailers were forced to standardize their pricing to the customer.

The dominant reason for manufacturing firms to offer rebates rather than decreasing the price for their goods is the possibility of customers that refuse to redeem rebates. These unredeemed rebates are now added profit to manufacturers. Whereas, when manufacturers lower the price for customers these companies lose profit. Nearly 40 percent of customers fail to redeem their rebate, this translate to nearly $2 billion of added revenue that companies did not forecast (Simchi-Levi, Kaminsky, & Simchi-Levi, 2008, p. 402).

One example of how unredeemed rebates add revenue to manufacturers is the example of TiVo Inc. Before TiVo’s implantation of the rebate, the first quarter loss was $ 9.1 Million. The same quarter the very nextnext year TiVo posted a loss of $857,000 (Ibid). This is a difference of under $8.25 Million. One reason for TiVo’s added revenue was that roughly 50,000 out of 104,000 subscribers failed to redeem their rebate. . This reduced TiVo’s expected rebate expense by $5 Million.

Even if all rebates were redeemed, why might manufacturer's still want to offer rebates rather than decrease wholesale prices?

There are two reasons why manufacturers may still want to offer...