Mail-in Rebates Research Articles

Consumer purchase response to e-bike incentives: Results from a nationwide stated preference study

Electric bike (e-bike) incentives are gaining popularity to increase ownership of e-bikes, with goals of increased mobility while reducing emissions. This study is among the first to experimentally analyze prospective purchase behavior of e-bike consumers to assess price sensitivity, behavioral response to incentives, and consumer value of e-bike attributes. We present results of a nationwide (20 cities) stated-preference survey and find e-bike incentives are powerful levers to shift behavior. Different incentive mechanisms have different behavioral utility. Point-of-purchase discounts are the most influential at shifting behavior, followed by tax credits, then mail-in rebates. Point-of-purchase discounts are 30% more effective than mail-in rebates. Across point-of-purchase scenarios, the average inframarginal cost of an added e-bike purchase is $4252 (range $3719 to $4799). Income-based schemes that are often aimed at increasing equity result in cost-effectiveness trade-offs. Policy makers should evaluate the investment in e-bike purchase incentives across benefits from added e-bike ownership that include not only greenhouse gas reductions, but also health benefits, increased mobility, travel affordability, safety, and congestion reductions.

Mail-in-rebate and coordination strategies for brand competition

This research investigates the strategic value of combining mail-in-rebate (MIR) and branding coordination strategies in the context of a supply chain composed of a national brand's manufacturer and a traditional retailer. The retailer offers two competing brands: the national brand and his own store brand. As a first step, we examine which party should bear the cost of the MIR promotional strategy and its role as a coordination mechanism to alleviate the brand competition. When there is close positioning of NB and SB's quality and a decent ratio of MIR redemption, our results show that both parties prefer the total control of the retailer over managing the national brand in his store by supporting all the costs of the promotional strategy. As a second step, we examine the role of various structures of coordination mechanisms, and we found that the “combined branding-promotion coordination” is the best option to boost the performance of all supply chain parties at the highest levels.

A comparative analysis of marketing promotions and implications for data analytics

Retailers use many different marketing promotions to increase sales and profits. These promotions include price reductions, coupons, cash mail-in rebates, free gift cards, and buy-one-get-one (BOGO) discounts. The type of promotion used results in different outcomes for demand, profit, average price, consumer surplus, and sales taxes collected. We perform comparative analysis of these five promotions and their outcomes. We show that for the same discount amount, price reductions result in the lowest average price. For products with weakly diminishing consumer utility and low consumer stockpiling, BOGO promotions result in the largest demand, profit, consumer surplus, and taxes collected. Cash mail-in rebates may result in large profit and taxes collected, but they perform poorly in terms of average price paid and consumer surplus. We also find that a retailer offering a delayed incentive (i.e. gift cards and mail-in rebates) offers a larger reward but provides lower consumer surplus than when offering an immediate incentive (i.e. price reduction and BOGO). In a segmented market with a price-insensitive consumer segment, immediate incentives have the disadvantage of allowing price-insensitive consumers arriving during the promotion to obtain the discount, which reduces the discount effectiveness. The addition of more retailer objectives to maximizing profit, such as demand maximization or consumer surplus, increases the effectiveness of immediate incentives. We also provide a framework for estimating the important parameters for evaluating promotion effectiveness using readily available transactional data and examine its accuracy using a simulation experiment.

Rebate mechanism for the manufacturer in two-level supply chains

In a supply chain setting, the manufacturer's strategy to offer mail-in rebates directly to customers or retailer rebates to retailer is pivotal. Retailer may pass some fraction of such retailer rebates to end customers. We discuss two important implications for rebates: 1) For both type of rebates, we analyze the case of explicitly defined wholesale and retail price. We show that retailer rebate can coordinate supply chain under special arrangements. Mere wholesale price discount does not confer supply chain coordination mechanism and retailer has to pass significant portion of discount to the end customers and hence, such coordination is more of a collusion. Our numerical insights show that instead of coordination, there is a collusion as the arrangement allows only one supply chain member to take all the extra profit. 2) We compare rebates efficiency for targeted-sales rebate scenario. Under such scheme, threshold exists for both the parties and depends upon redeemers' proportion for the manufacturer. Using this strategy, the manufacturer is in a better position to determine the type of promotion. For the manufacturer, retailer rebate is a useful tool for controlling retail price while with mail-in rebate, he discriminates price among customers based on rebate sensitivity.

Optimal Rebate Strategies Under Dynamic Pricing

Instant discounts and mail-in rebates are two common pricing tools in retail, but they are not simple substitutes. On the one hand, consumers discount the face value of a mail-in rebate, making it less effective than an instant discount in inducing consumers’ purchase. On the other hand, a portion of consumers with mail-in rebates fail to redeem them, resulting in savings for the retailer. We study how retailers, under pressure to move inventory, should use these two pricing tools to maximize revenue by determining the optimal use of mail-in rebates together with dynamic pricing of limited inventory. In a base model that allows frequent adjustment of product price and rebate face value, the optimal policy takes the form of “discount only,” “rebate only,” or a combination of the two. For useful heuristics with infrequent policy adjustment, we analyze the deterministic approximation of the base model. Interestingly, the deterministic solution splits the selling season into two segments, and it suggests using different pricing-rebate policies in each segment. Finally, we study a scenario in which the retailer has only one opportunity to introduce a static rebate, and we find that for any inventory level there is a cutoff time before which rebates should not be used. Our numerical studies show that such an optimal one-time static rebate policy performs well compared with the optimal revenue in the benchmark model. The online appendix is available at https://doi.org/10.1287/opre.2017.1642 .

Rebate redemption requirements – Can they discourage redeeming?

Mail-in rebates are a popular price promotion that receive substantial negative criticism due to high consumer resentment and mistrust. There is little research examining rebate redemption requirements and it seems no attempt has been made to develop a measure of what constitutes a reasonable and, perhaps more importantly, an unreasonable set of compliance requirements. This paper reports on a study of rebate promotion redemption requirements and the differences in their perceived onerousness. Furthermore, we test the effect of rebate requirement onerousness on consumers’ intention to redeem. Results show that consumers do perceive difference in the relative onerousness of rebate requirements. Furthermore, through the use of Best-Worst Scaling it was possible to rank the onerousness of requirements and demonstrate that the most onerous were up to 50 times more likely to deter consumers from redeeming than the least onerous. These results will help marketers better understand how to promote products using rebate promotions that do not foster consumer angst. Findings offer implications for retailers, product marketers, policy makers, and regulators.

Coordinating contracts for supply chains that market with mail-in rebates and retailer promotions

Marketing promotions are pervasive in industry, yet too often they are introduced without regard to their potential impact on the whole supply chain. This paper considers a cooperative business environment where a manufacturer and a retailer work interactively in determining their independent sales promotional actions. We use a newsvendor-modelling framework to study coordinating issues when the manufacturer provides mail-in rebates directly to consumers while the retailer exerts promotional effort to further spur consumer demand. We find that quantity discount contracts in conjunction with buy-back achieve supply chain coordination. Successful coordination can result in significant supply chain improvement, which leads the retailer to order more units and exert higher promotional effort level. With numerical examples, we provide additional insights on the conditions for the manufacturer to offer rebates.

Mail-in-rebate coupled with revenue sharing and downward direct discount for supply chain coordination

Use of sales promotion in the short-term to increase sales by revenues and market share for slow-moving items is common in the supply chain, though in such cases performances of chain members are suboptimal. On the contrary, a growing body of literature suggests that a high degree of integration is needed to optimise performances of all supply chain partners simultaneously. To address supply chain integration, when sales promotion is used, we consider a three-echelon supply chain. Demand depends on the selling price by the retailer and individual promotional mechanisms are chosen by channel members. We study game theoretical models to examine impacts of two promotional policies, e.g., mail-in-rebate (MIR) and downward direct discount (DDD) on supply chain coordination. Effectiveness and flexibility of MIR, MIR coupled with revenue sharing (RS) and DDD as coordination contracts are discussed analytically. We show that in decentralised decision making all channel members prefer manufacturers MIR and discard the possibility of distributers' MIR. Although to cut out channel conflict all chain members cooperate actively by complementing one another through contribution to invariant discount that is provided to customers, still, distributors and manufacturers prefer MIR and RS to DDD, whereas retailers prefers the reverse.

The Effect of Mail-in Utility Rebates on Willingness-to-Pay for ENERGY STAR $$^{\textregistered }$$ ® Certified Refrigerators

The number and variety of governmental programs designed to promote energy efficiency have increased over time. Examples include mandatory minimum efficiency standards, subsidies for more energy efficient goods and services, and consumer labels, such as the United States Environmental Protection Agency’s ENERGY STAR\(^{\textregistered }\). While there has been considerable research on the effects of these programs in isolation, there has been less of a focus on joint effects or interactions between programs. This study examines how the offer of a mail-in rebate influences consumer willingness-to-pay for an ENERGY STAR-certified refrigerator. Data used for this study were collected from an online survey containing a hypothetical choice experiment conducted in the United States in 2009. Results suggest that the offer of a rebate induces uncertainty about the quality of ENERGY STAR-certified refrigerators and, thus, could actually reduce willingness-to-pay for such refrigerators.

Analysis of the effectiveness of manufacturer-sponsored retailer gift cards in supply chains

Some manufacturers sponsor “free” retailer gift cards to be given to consumers who purchase their products. These gift cards are paid for by the manufacturer and are redeemable on all products at the retailer. We develop a model of such a supply chain. We analyze cases in which the gift cards’ redemption rate is constant or increasing in gift card value. The results indicate that in addition to the redemption rate and consumers’ valuation for gift card dollars, the profitability of manufacturer-sponsored gift cards depends on the average gross margin of the retailer and the type of purchases consumers make with gift cards. Furthermore, we show that under certain conditions, free gift cards will increase the expected profits of the retailer and manufacturer as well as decrease the retail price of the product. These conditions include a retailer with large average gross margin and consumers using gift cards to purchase products they would not buy with cash otherwise. Furthermore, all consumers, including those who do not redeem the gift card, are more likely to benefit from a reduced retail price when their probability of redeeming the gift card after purchase is equal to their estimated redemption probability at purchase time. We show the conditions under which gift cards are more profitable than cash mail-in rebates. We develop an incentive scheme to improve the performance of supply chains with gift cards.

Joint Mail‐In Rebate Decisions in Supply Chains Under Demand Uncertainty

We study the joint decisions of offering mail‐in rebates (MIRs) in a single‐manufacturer–single‐retailer supply chain using a game theoretic framework. Either party can offer an MIR to the end consumer if it is in his best interest. The consumer demand is stochastic and depends on the product price and the amount of MIRs. When the retail price is exogenous, we show the existence of a unique Nash equilibrium under both additive and multiplicative demand functions and characterize it completely. We show that any of the following four scenarios can be the equilibrium: both parties offer MIR, only one party offers MIR, none offers MIR. When the retail price is a decision variable for the retailer and the rebate redemption rate increases with the amount of MIR, we once again prove the existence of a unique Nash equilibrium where both the retailer and the manufacturer offer MIRs. Using a numerical study, we show that the average post‐purchase price of the product is higher not only than the perceived pre‐purchase price but also than the newsvendor optimal price without an MIR. This implies that an MIR makes a product look cheaper while the consumers actually pay more on average.

Positive Affect, Intertemporal Choice, and Levels of Thinking: Increasing Consumers' Willingness to Wait

Six studies examine the influence of positive affect on self-control in intertemporal choice (consumers' willingness to wait for desired rewards) and the cognitive processes underlying this effect. Two studies measure participants' levels of thinking in two different ways, showing that positive affect can promote forward-looking, high-level thinking. Two studies using a delay-of-gratification paradigm demonstrate this forward-looking thinking and show it to be a mindful process. Participants in positive (vs. neutral) affect were more likely to choose a larger mail-in rebate over a smaller instant rebate when the reward differences were moderate (but not when they were small). Two studies demonstrate the impact of positive affect on intertemporal preference in another way, showing that participants in positive affect do not discount the value of delayed outcomes as much as people in neutral affect do (decreased present bias). Together, the results indicate that positive affect promotes cognitive flexibility and fosters a higher level of thinking and a more future-oriented time perspective, without obscuring practical considerations and other needed detail, including context and opportunity costs, when evaluating intertemporal options.

Using MSRP to enhance the ability of rebates to control distribution channels

Manufacturers have increasingly instituted widespread mail-in rebate programs in recent years. Two primary purposes for rebates are to: (1) more directly impact consumer demand by reducing net retail price, and (2) capitalize on consumers’ slippage behavior because not all consumers who intend to redeem the rebate at purchase time end up actually redeeming it. However, retailers can counteract the power of rebates to impact demand by simply raising the retail price by the amount of the manufacturer’s rebate. We show that by combining a manufacturer’s suggested retail price (MSRP) along with a rebate, the manufacturer can better control the channel by inhibiting the retailer’s ability to raise price, particularly when consumers exhibit loss aversion. As a result, incorporating MSRP with a rebate promotion plan increases the manufacturer’s profit. More surprisingly, the profit of the supply chain as a whole also increases, and the channel efficiency increases as well. In fact, contrary to results from the existing rebate literature suggesting that rebates should always be offered whenever slippage exists, we demonstrate that MSRP can actually be a more effective tool than rebates in managing retailer and consumer behavior when consumers do not have sufficient loss aversion and the slippage rate is low enough.

Mail in Rebates: What the Firms Do Not Want You to Know

The theory of present biased preferences appears to fall apart in the case of mail in rebates. The theory states that if a purchase is made, no matter the primary objective, the consumer will redeem the mail in rebate within the time period allowed. Yet 50% of the people who purchase an electronic good accompanied by a mail in rebate fail to redeem it. Sometimes the proportion of the rebate reaches 100% of the value of the product. Why is this the case? Mail in rebates constitutes one of the many monetary strategies which firms make available to consumers from time to time. I then discuss the motivation for this paper and proceed to provide the findings of the past literature. Chapter 2 is dedicated to the development of a basic model with a single firm. In Chapter 3 the model is expanded to consider market competitors and their impact on the interactive game based on the nature of the market. The conclusion will summarize the findings of the model and proceed to make recommendations for future work. Work is already under way to come up with an experimental design appropriate to test the model.

Slippage in Rebate Programs and Present-Biased Preferences

Present-biased preferences capture the idea that individuals may find immediate payoffs significantly more salient than any future payoffs, rather than simply discounting the future in a time-consistent manner. In this paper we show that consumers' present-biased preferences can generate slippage, and we explore whether this can explain firms' use of mail-in rebates. We assume that the consumer population comprises members who have various degrees of present bias. The model demonstrates that if consumers have homogeneous willingness to pay for a product (and thus rebates do not serve as a mechanism for traditional price discrimination) rebates may still profitably exploit slippage, but to do so they must generate very high slippage rates. This is, because the rebate must greatly exceed the price markup because the rebate must compensate consumers for the cost of redemption and the delay in receiving the rebate. The ability of rebate programs to take advantage of present-biased consumers is quite limited in settings where there is significant variance in the degree of present bias within the population unless the extent of consumers' present bias is highly correlated with their rebate redemption costs.

The Impact of Consumer Perceptions of, and Attitudes Toward Mail-in Rebates on Effectiveness of Rebates

Rebates remain a popular promotional tool ($6 billion annually) despite many consumer complaints. Approximately 40% of rebates go unredeemed each year. Manufacturers and/or retailers can count on this low redemption rate to help reduce their promotional costs. Earlier studies on rebates tend to focus on factors impacting rebate redemption. We chose to examine the factors that influence mail-in rebate effectiveness. We found rebate amount, perceived price of item with the rebate offer, and the wait time for rebate checks have strong impact on the effectiveness of a rebate campaign. Managerial implications of these findings were discussed.

Optimal pricing and delayed incentives in a heterogeneous consumer market

Delayed incentives in the form of cash mail-in rebates have become very popular. We develop and solve a model for jointly determining optimal price and rebate value for a heterogeneous consumer market. Consumers are divided into three segments: rebate independent, fully rebate dependent, and partially rebate dependent. Partially rebate-dependent consumers' redemption probability depends on the value of the rebate relative to a reference value. Data show that the probability of redemption increases linearly in rebate value for small rebate values and at a decreasing rate as the rebate value becomes large. The model shows that two consumer attributes are critical in determining the effectiveness of rebates. The first is the reference value. The larger the reference value, the larger the optimal rebate value and the higher the profit. The second is the distribution of consumers among the three segments. Profit decreases as the proportion of consumers in the probabilistic redeemers segment decreases. There is, however, a threshold value where profit increases as the proportion of consumers in the partially rebate-dependent segment decreases. This occurs because as the rebate-independent and fully rebate-dependent consumers are priced out of the market, a seller can increase both price and rebate value substantially without having to be burdened by the heavy cost of rebates for the fully rebate-dependent segment. If the reference value for the partially rebate-dependent segment is high, such a strategy may prove profitable.

An agent based modeling approach for determining optimal price-rebate schemes

Delayed incentives in the form of cash mail-in rebates have become very popular. While some research has been conducted on consumer perception and behavior toward rebates, little research has been undertaken with respect to a seller’s optimal rebate strategy. We use an agent-based modeling approach for jointly determining optimal price and rebate value. This approach has been previously applied to pricing and can capture some aspects of the problem which are difficult to analyze using traditional mathematical modeling. The model indicates that rebates are much more profitable when their values are jointly determined with price. In addition, the profitability of rebates at a given time depends on past consumers’ experience with rebates and that consumers’ memory of their past rebate redemption behavior plays an important role in determining the profitability of rebates. Also, the analysis shows that agent-based modeling may provide an alternative method for analyzing problems in which interactions between participants in the systems, i.e. consumers, sellers, and regulating agencies, are important in determining the overall behavior of the system.

The impact of manufacturer rebates on supply chain profits

AbstractManufacturer rebates are commonly used as price discount tools for attracting end customers. In this study, we consider a two‐stage supply chain with a manufacturer and a retailer, where a single seasonal product faces uncertain and price‐sensitive demand. We characterize the impact of a manufacturer rebate on the expected profits of both the manufacturer and the retailer. We show that unless all of the customers claim the rebate, the rebate always benefits the manufacturer. Our results thus imply that “mail‐in rebates,” where some customers end up not claiming the rebate, particularly when the size of the rebate is relatively small, always benefit the manufacturer. On the other hand, an “instant rebate,” such as the one offered in the automotive industry where every customer redeems the rebate on the spot when he/she purchases a car, does not necessarily benefit the manufacturer. © 2007 Wiley Periodicals, Inc. Naval Research Logistics, 2007

The Consumer Psychology of Mail-in Rebates: A Model of Anchoring and Adjustment

Consumers who buy a product intending to use an accompanying mail-in rebate often do not redeem the rebate. To explain this behavior, we argue that consumers use an anchoring and adjustment approach to predicting the likelihood of redeeming a rebate. In keeping with previous research on anchoring and adjustment, for instance, we show that when presented with a desirable product, consumers anchor on scenarios of successful redemption and adjust insufficiently for things that could go wrong in the redemption process. However, we also propose this anchoring and adjustment process is impacted by a consumer's motivation to purchase the rebated product. In particular, we propose the anchor employed will be driven by the valence of a consumer's underlying motivation. Specifically, a consumer that is motivated to purchase the product will anchor on scenarios of successful redemption while a consumer that is motivated to avoid purchasing will anchor on scenarios of failed redemption. We also propose that the degree of adjustment consumer's employ will be driven by their strength of motivation - i.e., the stronger the motivation, the less the adjustment to the motivational anchor. Consequently, mail in rebates either can serve to enhance or to dampen purchase intention depending on a consumer's underlying motivation. In other words, rebates offer consumers a means to justify a preferred course of action. Across a series of three studies, we show this to be the case.