The Great Rebate Runaround

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

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.

Manufacturers may want to offer rebates rather than decrease wholesale price because most people will not redeem the rebate and thus, the manufacturer can offer the rebate to those who really need and will redeem it and get the whole value from those who can afford the product and will not bother getting the rebate. This is an example of customized pricing because it customizes to both the bargain hunters with the rebate offer and those who are looking for the product rather than a bargain and will not bother to redeem and can afford the full price.

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

Manufacturers can still put the full revenue on their books and make it look like they have higher cash flow since rebates go as an expense on their spread sheets and this will raise their reports and thus their stock will rise as well. In addition, by showing an expense as a loss, they may also get some tax breaks on their overall profit.

Why do you suppose that Best Buy, rather than one of Best Buy’s big suppliers such as Sony or Panasonic, is considering eliminating rebates?

Best Buy wants to eliminate rebates because they price match other stores and due to this, if they add a rebate on top of that, they end up losing a lot of money that they otherwise would not lose if they could just price match without the rebate attached. In addition, rebates take a lot of admin costs on the part of the retailer to administer that Best Buy may not have the money for.