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Read it here first: Rebates Suck

Posted By Barry Ritholtz On March 4, 2006 @ 8:00 pm In Financial Press,Retail | Comments Disabled

I’ve long railed against the rip off (2003) [1] that is mail-in consumer rebates. I applauded Best Buy’s decision to drop them [2], and Marketwatch’s coverage of related rebate problems [3].

My own consumer experience with rebates [4] has been decidely negative, that I refuse to buy any product with a rebate. Period, end of story, no further discussion necessary. And going by your Feedback on the subject, so has yours [5].

The NYT discusses this today in "A Growing Anger Over Unpaid Rebates [6]." They quote Matthew Gold, a staff lawyer with Federal Trade Commission, who notes "Fraud is not involved in most rebate problems."

Unfortunately, this misses the key issue: Any process that artificially intereferes with the a negotiated price between a buyer and a seller is itself inherently fraudulent. Once the two agree on a price and terms for a transaction, that should be the end of the negotiation process. The rebate process interferes with that contract — it not only adds an inefficiency, it also adds to the transaction costs of the purchase. The mere prosecution of a rebate is a hidden cost to the transaction 

The entire bureaucratic, limited window, hyper-technical processing system itself is a massive fraud BY DEFINITION. From soup to nuts, it is created, designed, calibrated and exists for the sole purpose of denying rebates — all the while giving the appearance that it is merely a processing step.

To put it more dramatically, rebates are a Cancer on the retail sales process.

Why not actually sell the product for the negotiated price? Why create another level of transactional costs for consumers to obtain the negotiated price? 

The most ridiculous version of this comes from direct sellers — like Dell. What possible purpose can this idotic process be with a direct seller other than to generate a sales price higher than that agreed upon?

When I set up my  own firm, I had a pretty hefty PC order to make. My own experience with Dell was  to negotiate what I thought was a fair price on this order. At the end of the process, they told me a few hundred dollars ($200) of this involved a rebate was — I refused. I told them that "I don’t do rebates, thats a non-negotiable DEAL KILLER, and I’m going to HP. Tell Mikey Dell I said Buh-bye." 

This was after a long process of putting in a bid, tweaking the specs, adding more peripherals. But the Dell salesperson apparently had the ability to credit me the rebate money to the original purchase price — so I got the $200 credited to the purchase pre-sale (otherwise, there would not have been a sale).

I can only imagine the absurdity that somewhere in the labyrinth rebate process, Dell had to process a rebate — to themselves — if only for book keeping purposes. Silly.

The bottom line is simple: The negotiated price should be what you actually pay — without additional administrative headaches, and without further transaction costs. Anything that interferes with a Buyer and a Seller’s Price agreement is inherently problematic. If enough consumers boycotted products that have rebates, the manufacturers — and retailers — might get the clue.


A Growing Anger Over Unpaid Rebates [6]
NYT, March 4, 2006

Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2006/03/read-it-here-first-rebates-suck/

URLs in this post:

[1] railed against the rip off (2003): http://bigpicture.typepad.com/writing/2003/08/more_rebate_non.html

[2] Best Buy’s decision to drop them: http://bigpicture.typepad.com/comments/2005/04/best_buy_admits.html

[3] rebate problems: http://www.marketwatch.com/News/Story/Story.aspx?guid=%7bBDA13C73-E3C6-44DC-94AB-6865500F7E7B%7d&siteid=mktw&dist=SignInArchive

[4] experience with rebates: http://bigpicture.typepad.com/comments/2005/08/what_can_we_lea.html

[5] so has yours: http://bigpicture.typepad.com/comments/2005/08/consumer_issues.html

[6] A Growing Anger Over Unpaid Rebates: http://www.nytimes.com/2006/03/04/business/04shortcuts.html?ex=1299128400&en=604d2608f20c7452&ei=5090&partner=rssuserland&emc=rss

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