Rebates Suck!

Relying on a "Rebate" to save money is poverty-think of the worst sort.

I mentioned before how the Internet is rife with poor financial advice.  And I mentioned how couponers are invariably poor - or at least struggling.   As I noted, if you really could make money on coupons, Warren Buffet would be clipping them out.   Spending money isn't making money, and the money you "save" by coupon-clipping is minimal, particularly compared to the effort and cost of trying to obtain these "bargains."

Oh, and by the way, about half of the "coupon" sites out there are little more than advertisements for products.  Yes, the "coupon lady" probably gets free product in return for promoting coupons for that product on her site (if there is even a "coupon lady" and the whole thing isn't just a corporate marketing effort).   That's where the real money is - in shilling on the Internet.   If you doubt me, consider this family, whose 6-year-old made $11 million reviewing toys online (of course, he didn't make the money, as legally a 6-year-old can't have money, but rather his parents, who actually make the videos hold the money - and hopefully some of it will be around when he turns 18).

And don't bother searching for a coupon blog, either - all you'll find on Google is "top ten coupon blogs!" or some such nonsense - mostly ads for crap you don't need.  Also, the couponing craze seems to have tapered off, as the really crazy coupon deals that used to be offered are disappearing fast.   Many coupon bloggers have moved on to other things, or given up blogging entirely.

But back in the day, you'd see blogsites and discussion groups online where couponers - invariably women - talk in a code that is almost like the codes the genealogy bloggers use.   With a coupon, store membership discount, rebate, and sale price, they would crow about how they got a bottle of shampoo for "free" from Walgreen or some such nonsense, or even got money back.   And this gets people to think that maybe they too, are "missing out" on something and should get into it.

I talked before about missing out - and why that is the worst way to invest.   In the news today, some bullshit article about how the guy who invented Bitcoin is "now the richest man in the world."  And he might be very rich if he sold all his Bitcoins.   But that would tank the value of Bitcoin, much as Bill Gates selling all his Microsoft stock, which illustrates why "Market Cap" is a mythical number meaning nothing except to click-bait headline writers today.

The temptation is to say, "Gee, I should have gotten on on that deal!" after you hear about it going down.   And for the guy who paid a dollar for a Bitcoin, it was a good deal - provided he sold out last week or so.   But for you, buying now, no, it is not a good deal.   Things that shoot up have no where to go but down.   By the time the media gets ahold of an investment, it has largely peaked in value.   Stop investing based on the "news" and stop investing based on regret.

But getting back to coupons and rebates, we were in New York last summer, near Ro-chester (the other Chester, besides Westchester.    We also have the Hamptons in Central New York - the Bing-Hamptons.   Not quite the same thing, of course, but close).   Anyway, people in New York believe that every last damn thing needs to be regulated, and the price of wine and liquor appears to be one of those things.  The liquor store had high prices, but helpfully offered a wall of manufacturer's "rebate coupons" that you could fill out and mail in.   So we dutifully filled out all these coupons, bought envelopes and stamps, got copies of receipts, and mailed them in.    According to the "coup-ins" we would be due about $40 in rebates!   Wow!  What a deal!  What should I name my yacht?

The problem with Rebates is that most people forget to send them in.  So most are not claimed.  Second, the rebate "coup-in" is about the size of a credit card, and made of slick paper.  You are supposed to write your name, address, telephone number and e-mail address on this tiny slip of magazine paper, which is nearly impossible to do.  And fun to do 10 times - once for each different purchase.

Once you mail it in, you wait.   Maybe they got it, maybe they didn't.   Unless you send it by return receipt guaranteed delivery (which would cost more than the rebate) there is no way to "prove" you sent it in.  So if they throw away half the rebate coupons they receive, you really have no recourse whatsoever.

Anyway, three months after mailing in nearly a dozen rebates, I get an e-mail from a rebate company that helpfully has a typo in its website address(!!) inviting me to check on the "status" of my rebate.  I click on the link (after fixing the typo) and enter my name and address and get.... one rebate is "being processed".   The other ten?   Gone into the ether.   Why?   No explanation given, and since I can't "prove" I sent them in, there is really no recourse on my part.  Even if I had a copy of the receipt and another rebate coupon, it is far too late to re-submit the rebate form, as you are limited by the number of days from purchase to submit, and also the rebates themselves have an expiration date.

Three more months go by.   I check this site about once every few weeks.   It is listed as "processing" and no further data is available - not even what the rebate is for or how much I am due.  Three months later - more than six months after we submitted the forms - a check arrives in the mail for $7 in the form of a postcard.   That alone is troubling.   Were other checks sent and intercepted along the way?  Who knows?

What happened to the rest of the rebates?   Was my handwriting illegible?  Were they lost in the mail?  Did I not comply with some esoteric rule in four-point type on the back of the coup-in?   Were the checks stolen?  Or did the rebate company simply fail to process them because, you know, stealing.   A nice gig, charge the liquor company for the rebate and then pocket the money instead of sending it to the consumer.   Perhaps.

I have no way of knowing.  I don't even know if all these rebate forms from various different brands are processed by the same "center" or not.  Since the amount of money is relatively small, it isn't worth my time to investigate - even if I had a way of tracking or investigating the matter!   So, I let it slide and the "great savings" evaporate like so much spilled vodka.

So.... why do companies use rebates in the first place?   Well there are a number of reasons:

1.  The Coupon Effect:  The hard-core couponers will send in rebate coupons with receipts and get a discount, while the vast majority of people will say to hell with it.  Thus, you gain an additional sale from the person who might not otherwise buy your product at full price.   In economic theory, this optimizes your profits, as you sell product to each consumer at the highest price they are willing to pay.   This is the least reason to offer rebates. 

2.   The Warranty Effect:   A lot of people never think about this, but many rebates require that you cut the UPC bar code off the product box when mailing in the rebate.  This prevents you from returning the item for a full refund - which would allow you to mail in rebate after rebate on the same item, purchased and returned again and again.  But it also has a secondary function - it means that if the product (say, an electronic device) breaks during warranty period, you have to go to the manufacturer for relief, instead of merely returning it to the big-box store where you bought it - as they won't take it back without the bar code intact.  Manufacturers are charged-back for returned items, so if they can make sure a sale "sticks" it is helpful to their bottom line.   Fewer store returns means more profits.  And that is why when you buy something that requires assembly, they exhort you to call their 1-800 number for those missing screws, rather than return the product to the store for a refund. 

3.  The Dealer Effect:   Car rebates were started (at least on a large scale) when Chrysler went bankrupt the first time, in the early 1980's.   Lee Iaccoca touted the "K-car" and offered a "rebate" to patriotic Americans who would buy one.  You bought the car and a few weeks later, you'd get a check in the mail for $500 or so.   Why not just lower the price of the car? 

The reasons are varied - car pricing is irrational to begin with.   GM, and in particular, Cadillac, puts joke prices on its products and then ends up selling them for one-third off the "list" price.  The resale value on the cars is, of course, lower than this, and thus when auto magazines calculate "depreciation", GM cars come up dead last (or first, depending on your perspective), as the resale compared to the mythical "list" price is huge, compared to other car companies that list prices closer to reality. 

Keeping list prices up placates dealers, who want to sell a "hot" car for list, or hope that your grandma will come in and pay sticker on a new Hupmobile.  So rebates are a way of preserving these mythical list prices.  They are also ways to move cars without having to complicate the already complicated math involved with dealers.  Dealers buy cars from manufacturers and then finance them, which is why dealers like to move inventory - they have to pay interest on the cars for every day they sit on the lot.   If prices were adjusted on a day-to-day basis, the accounting would be a nightmare.   Easier to offer a "rebate" to move slow-selling cars at slow times of the year. 

Of course, today, the rebates are often applied to the purchase price or down payment - and paid directly to the dealer or finance company.  And often they are not called "rebates" anymore but "dealer cash" or "dealer incentives" or some such nonsense.   Car dealers get all sorts of kickbacks from manufacturers - including bonuses for selling a large number of cars, which is why the volume dealers can sell for less than your local Mom and Pop shop. 

4.  Price Preservation:  I touched upon this above with the Dealer Effect.   By using rebates, you maintain your "list" prices and make it appear everyone is getting the same deal.   The grand-daddy of rebates - and arguably the source of the phrase - was John D. Rockefeller.   He had a deal with the railroads that if he shipped enough oil with them, he would get a rebate.   At the time, oil shipments were the single biggest source of freight revenue and the New York Central and Penn Central would compete with each other for Rockefeller's business.  Since they could not alter their listed freight rates, they competed by offering rebates. 

Some claimed this was illegal - and an illegal kick-back to Standard Oil.   Freight rates were supposed to be uniform - with each shipper paying the same amount per ton.  Rebates were a way of adjusting rates without adjusting rates. 

Price preservation has other uses as well.   When you are selling a "premium" product (for example, liquor) you want it to have the cache of a premium brand.   And part of that cache is the price you pay for it.   There are a lot of expensive brands out there that are not much better than cheaper brands, but people buy them on the basis of status.   "Look how much I can afford to spend!" the buyer is saying, even as he puts the purchase on an over-extended credit card. 

Once a product appears in the bargain bin, the cache is ruined forever.   It is damn hard to reclaim status for a product, once it is on closeout at K-Mart.   But this creates a conundrum for the manufacturer if there is an oversupply of product or the product is slow to sell.   By offering a rebate, you can sell the product to bargain status-seekers without disturbing the hallowed "retail price" - or at least that is the theory.   The reality is, word gets around that you are discounting, and pretty soon, your vaunted "premium" brand is bargain-basement. 

5.  You Don't Have To Pay:   Getting back to the subject of my posting, nine times out of ten, people take the rebate coupon at the retailer and promise to fill it out - and then forget to do it.   Each time someone doesn't bother to process a rebate, you make money, so to speak.   They bought on the premise that with the rebate they were getting a lower price.   But since they never actually get that lower price, you make a sale at full price. 

Better yet, once the rebate coup-ins are mailed in, you can throw away half the submissions with little or no recourse.   People simply aren't going to raise a fuss about missing rebate checks - and they have no way of proving anything anyway, unless they spent a buck for certified delivery, and who in their right mind would do that? 

So you offer a rebate, knowing full well most people won't send it in, and if they do send it in, you can claim there is some defect in the paperwork which allows you to decline payment if you acknowledge that you received it at all.

The best deals in the world are where you hand someone cash and they hand you a product or service right there on the spot.  The more complicated the deal, the less likely it is to the advantage of the consumer.  So marketers and con-artists (am I being redundant?) offer complicated deals.  And people mistakenly think that working complicated deals is being a "smart consumer" when in fact, it is just stepping in a bear trap.

Buying a car at a dealer is a complicated transaction, and no matter how "astute" you are and how cleverly you try to play the deal, you always come out behind.   Buying a car, for cash, from your neighbor next door, is a simple deal.  You hand them cash, they hand you the title and the keys.  You know how much you paid for the car.   With a car dealer, between the financing, trade-in, and dealer "fees" you might have no idea at all.  With leasing, even worse.

And so on down the line.  When you buy your groceries based on getting five cents off a gallon of gas, you are complicating what should be a very straightforward deal - cash-for-food.   And not surprisingly, the grocery store offering that deal is the most expensive in town.   They want to distract you with the side-deal, so they can rummage through your wallet while you are not looking.

So why did I send in the rebate coupons in the first place?  In part, as an experiment for this blog.  Also, because, well forty bucks is forty bucks - but I had an inkling that I was going to get hosed from the get-go.  If it was for fifty cents or a buck, I wouldn't have bothered.   And in retrospect, I guess I learned a lesson - a "great deal" on a case of wine isn't such a great deal, if the rebate coup-in was just a sick joke on the consumer.

Next time, pay cash and get the lowest price!

Remember:  Strippers don't accept "coup-ins"!