Rebate (marketing)
A rebate is an amount paid by way of reduction, return, or refund on what has already been paid or contributed. It is type of sales promotion marketers use primarily as incentives or supplements to product sales. The mail-in rebate (MIR) is the most common.
A MIR entitles the buyer to mail in a coupon, a receipt and barcode in order to receive a check for a particular amount, depending on the particular product, time, and often place of purchase.
Rebates are offered by either the retailer or the manufacturer of the chosen product. Large stores often work in conjunction with manufacturers, usually requiring two or even three separate rebates for each item. Manufacturer rebates are sometimes valid only at a single store. Rebate forms and special receipts are sometimes printed by the cash register at time of purchase on a separate receipt or available online for download.
Rebates are heavily used for advertised sales in retail stores in the United States, such as Best Buy and Staples. However, Best Buy, in April 2005, announced that they would be eliminating all mail-in-rebates. In 1992, mail in rebates were not usual in the UK, the so called 'Hoover Free Flights fiasco perhaps giving evidence of its pitfalls.
Personal computer components and electronics seem to have a large portion of rebate sales. For example, an item might be advertised as "$39 after rebate" with the item costing $79 OTD (out-the-door) with a $40 rebate that the customer would need to redeem. The turnaround time is generally four to eight weeks, though some rebates note a period of eight to twelve weeks.
Most rebates are handled under contract by rebate clearinghouses that specialize in processing rebates and contest applications. The source of their fees is not readily discernible with conflicting reports from different sides. Roger D. Andersen, former CEO of Young America, a rebate clearinghouse claims that "Young America receives the same fees whether a submission is valid or invalid," giving them no incentive to unfairly invalidate customer rebates. Young America is currently under investigation by the state of Massachusetts for keeping unclaimed rebate checks. . Frank Giordano, founder of TCA Fulfillment, claims "We get paid for every redemption request we enter in the system. If we don't put it in the system, we don't get paid." . TCA is also notable for a "Rebate Redemption Guide" that was sent to prospective clients touting the low redemption rates that they would have with TCA as their rebate fulfillment center, promising 20% less than their competitors.
In the United States, Connecticut state regulations section 42-110b-19(e) require retailers who advertise the net price of an item after rebate to pay consumers the amount of that rebate at time of purchase. Rhode Island has similar legislation (Gen. Laws 6-13.1-1)[8]. Otherwise, the after-rebate price cannot be advertised as the final price to be paid by the consumer. For example, retailers in Connecticut can only advertise "$40 with a $40 rebate," not "Free After Rebate," unless they give the rebate at the time of purchase.
Rationale
Rebates have become very popular in retail sales. Retailers and manufacturers have many reasons to offer them:
* Customers tend to notice price increases and react negatively. Rebates offer retailers the benefit of giving customers a temporary discount on an item, to stimulate sales, while allowing it to maintain its current price point. This method avoids the negative backlash that could be perceived with a price being lowered and then raised later.
* Rebates also allow companies to "price protect" certain product lines by being selective in which models or brands to be discounted. This allows retailers and manufacturers to move some product at lower cost while maintaining prices of successful models. A straight price reduction on some models would have a domino effect on all products in a line.
* During the turnaround time, the company can earn interest on the money.
* If the turnaround time crosses into the next fiscal year or quarter, a rebate offer can inflate sales in the current period, and not have to be accounted for until the next period-and then it could be attributed as a cost reducing sales or expense for the next period giving companies an accounting advantage with their Wall Street projections.
* Extended warranties and other price-dependent factors always use the initial purchase price, not the price after the rebate. This is normally because if the company has to refund the customer the "replacement value", it would be the before rebate "in-store" price.
* Rebates can also be used to collect consumer information as it is required by most rebate forms for consumers to fill in personal or household information. This information can be used by producer or retailer to analyze consumer behavior.
* Once the UPC has been removed from the box, retailers can refuse to accept a return of the item.
* Not all buyers will meet the criteria to receive the rebate. Companies often require the original UPC barcode, receipt, and additional information, which a buyer may forget to include when redeeming the rebate. Companies almost always add other caveats to the rebate as well, such as the redemption having to be postmarked by a certain date. It works in the company's favor if buyers do not act quickly to redeem. However, a University of Florida study notes that shorter redemption periods actually increase the redemption rate in the consumer's favor because it gives them less time for procrastination to set in.
* Not all customers will actually mail in the rebate coupons (in the case of a mail in rebate) and thus giving the manufacturer/retailer a higher profit.
* New companies that want to make a break into a market can offer substantial rebate savings on their new product as a means of capturing a customer's attention. Zeus Kerravala, vice president at the Yankee Group, has said "For companies that haven't been in a particular market, the rebate that essentially refunds the customer's money is a great way to get people to pay attention to them, This is especially true in consumer electronics, where brand name does matter. It's a good way to get customers to take a chance on a new brand.
Benefits for consumers
Rebates give customers an avenue to a better value by redeeming the rebates. The amount of time and effort required in comparison to the savings potential is a weight to measure for each individual consumer. The very fact that some consumers do not redeem their rebates is what allows companies the ability to offer such value pricing in the first place that many consumers do capitalize on. Deal hunter sites frequently tout the benefits of rebates in making technology affordable: "Rebates are the meat and potatoes of the ultimate tech deal, no matter what you are buying… They are paying you money to buy their stuff. All you have to do is take it."
Industry advisers note that if mail in rebates go away, they will not be replaced by "instant rebates" of the same value amount because of the loss of the tangible benefits listed above (fiscal accounting, price protection, etc.) Steve Baker, vice president of industry analysis for NPD Group, comments that "It's a case of be careful of what you ask for. You may see some great deals go away."
Redemption rate inconsistencies
It is difficult to get an account of redemption rates from most rebate companies, partly due to a reluctance on the part of rebate fulfillment houses to release confidential business information. Among different sources, radically different numbers on both ends of the spectrum can be cited. Part of the reason is that most "redemption rates" don't distinguish whether they are calculated as part of total sales or incremental sales.
* PMA, a marketing firm, estimated that in 2005 $486.5 million worth of rebates were redeemed. The redemption rates averaged 21.1% when calculated as a percentage of total sales, and 67.6% when calculated as a percentage of incremental sales. They go on to note “These statistics reveal that redemption rates calculated as a percentage of total sales can be misleading when diluted by non-incremental sales, consequently making redemption rates appear lower than they truly are.”
* Not all buyers remember to mail the coupons, a phenomenon known in the industry as breakage, or the shoebox effect. Though it can be used interchangeably with breakage slippage is the phenomenon when a consumer has their rebate fulfilled but they lose or forget to cash the check. Some rebate companies could tout a higher "redemption rate" including the breakage, while not calculating the potential slippage of uncashed checks.
Rebate checks
Some redemption estimates
* BusinessWeek recently estimated a return rate of 60 percent. Some estimates have been as low as 2%. For example, nearly half of the 100,000 new TiVo subscribers in 2005 did not redeem their $100 rebates, allowing the company to keep $5,000,000 in additional profit.
* PC Data in the Reston, VA estimates between "10 and 30 percent".
* PlusNetMarketing in Wilmington, DE quotes 80%
* Carol de Ville, the vice president of sales of Marco Sales and Incentives notes “In some cases, we do have redemption programs that go as high as forty to fifty per cent, but generally it’s about one to five per cent”. In the same article, John Challinor, advertising manager for Sony Canada remarks that “The industry average is less than ten percent....and it can be as low as one percent.
* NPD Group, a marketing firm, estimates 50% to 70%
General complaints
At some big box stores, personal computers are regularly sold with sizable rebates attached, making the advertised price more attractive to buyers. It is common, though, for these rebates to be conditional upon signing a long term contract with a particular ISP, to which some customers may object. Hardware manufacturers have come under fire, also. Dell, for one, has been the subject of rebate complaints involving misprinted receipts, potentially confusing expiration dates, and service representatives who are slow to react. Rebate issues began to clog Dell's customer service forums, leading the company to shut down that portion of the website, and refocus its energy on new online customer care solutions. CompUSA used rebates regularly until it started closing its remaining stores in December 2007.
Cell phone service companies, including major players like Verizon Wireless and T-mobile, as well as third-party retailers like Radio Shack, Wirefly and others have received growing attention due to complex rebate redemption rules. Both carriers and retailers make customers submit rebate claims during a 30-day window, often 6 months after cell phone activation. Some authorized dealers have responded by trying to make rebate requirements more transparent, explaining that the carrier will withdraw payment from them if a customer quits service before the end of the contract.
Typical UPC barcode required for rebate submission
Typical UPC barcode required for rebate submission
Rebates as a form of price discrimination
A common complaint against rebates is the claim that rebates can be used as a form of “price discrimination” against the less “sophisticated” lower classes who are less likely to redeem rebates than a more educated middle class. Sridhar Moorthy, marketing professor at the University of Toronto also advocates a “price discrimination” theory between “people who are price-sensitive and people who are not price-sensitive.”. A different view, as taken by the BusinessWeek article, is that rebates can be viewed as a “tax on the disorganized” that is paid by those who do not submit their rebates as opposed to those who do.
Foreign buyers are also discriminated as they will often not be able to provide a domestic address for the check to be mailed in.
Recent trends
Some retailers have taken a step forward with offering consumers new ways to submit their rebates easily over the Internet, completely or partially removing any mail in requirements. Staples, Walgreens (as a trial in some states, see current list on their rebate site), Circuit City, TigerDirect and Rite Aid currently offer an online submission option for all or some of the rebates they offer. These special rebates are usually identified as such and have instructions for full or partial online submissions. This is touted as a more accurate processing of the rebate, reducing the potential for human or mechanical error and in many cases eliminating the postage costs associated with traditional mail in rebates, although some require the UPC or Proof Of Purchase to be mailed in. Most of these retailers still let consumers submit rebates by mail.
In 2006 OfficeMax stores announced that they were eliminating mail-in rebates from their sales promotion in favor of instant rebates for their sale prices. The decision came after a year of working with rebate vendors and manufacturers to improve the rebate process and receiving "overwhelmingly negative feedback" from their customers about their rebate program.
Tax rebate, a reduction in taxation demanded
The Economic Stimulus Act of 2008 (Pub.L. 110-185, 122 Stat. 613, enacted 2008-02-13) is an Act of Congress providing for several kinds of economic stimulus intended to boost the United States economy in 2008 and to avert or ameliorate a recession. The stimulus package was passed by the U.S. House of Representatives on January 29, 2008, and in a slightly different version by the U.S. Senate on February 7, 2008. The Senate version was then approved in the House the same day. It was signed into law by President George W. Bush on February 13, 2008. The law provides for tax rebates to low- and middle-income U.S. taxpayers, tax incentives to stimulate business investment, and an increase in the limits imposed on mortgages eligible for purchase by government-sponsored enterprises.
Tax rebates
The tax rebates created by the law will be paid to individual U.S. taxpayers during 2008. Most taxpayers below the income limit will receive a rebate of at least $300 per person ($600 for married couples filing jointly). Eligible taxpayers will receive, along with their individual payment, $300 per dependent child under the age of 17. The payment will be equal to the payer's net income tax liability, but will not exceed $600 (for a single person) or $1200 (married couple filing jointly). Net liability can be found in these locations:
* Form 1040: line 57 plus line 52
* Form 1040A: line 35 plus line 32
* Form 1040EZ: line 10
Those with no net tax liability will still be eligible to receive a rebate, provided they meet minimum qualifying income of $3,000 per year. Rebates will be phased out for taxpayers with adjusted gross incomes greater than $75,000 ($150,000 for couples filing jointly) in 2007. For taxpayers with incomes greater than $75,000, rebates will be reduced at a rate of 5% of the income above this limit. Individuals who are claimed as dependents by another taxpayer are not eligible for the rebates.
The $3,000 of qualifying income includes earned income (e.g., wages, self-employment income, Social Security), however Supplemental Security Income does not count as qualifying income for the stimulus payment. Also, low-income workers are required to file a return to receive the payment, even if they would not be required to file for income tax purposes.
Some taxpayers who exceed the income limits, but have qualifying children, will still get a rebate. For example, a single parent whose 2007 adjusted gross income was $90,000, pays more than $600 in 2007 taxes and has two qualifying children will receive a rebate of $450. The IRS adds together a $600 rebate for the parent and $600 for the two children to get $1,200, then subtracts the phaseout reduction of $750 ($50 for each $1,000 income above $75,000) to get $450.
According to the IRS, the stimulus payment will not reduce taxpayers' 2008 refunds or increase the amount owed when filing 2008 returns.
The payment schedule is based on whether the taxpayer's 2007 tax return listed direct deposit information as well as the last two digits of the social security number of the tax return's main filer, with direct deposits being sent between May 2 and May 16 (the payments will be listed on the taxpayer's bank statement as "US TREASURY 220 TAX REFUND"), and paper checks being sent between May 16 and July 11. On April 25, 2008, President Bush announced that the rebates will start going out on April 28, 2008 and the paper checks will be sent out starting on March 28th, earlier than previously announced by the IRS.
Taxpayers who used direct deposit for their refunds will receive the stimulus payment that same way, provided they have not done any of these things:
* Taken out a refund anticipation loan or "rapid refund";
* Used a service such as TurboTax and had the transmission fees taken out of the refund amount;
* Had their refund deposited across two accounts;
* Allowed their tax preparer (such as a CPA) to deduct their fee from the refund amount.
If any of these scenarios apply, the payment will be sent as a paper check through U.S. mail.
Business tax incentives
The law offers businesses a one-time depreciation tax deduction equal to 50% of the cost of specified kinds of new investment during 2008. Qualifying investments include tangible property, such as industrial or business equipment, expected to remain in use for less than 20 years, purchased computer software, water utility property, and qualified leasehold improvements. The law also raises the limits on the value of new productive capital (machinery, equipment, and some other types of property) that businesses may exclude from their income as business expenses during 2008. Previously, the limit on expensable productive capital investments had been $128,000, reduced (but not below zero) by the amount by which the value of those investments exceeded $510,000. The law raises those limits to $250,000 and $800,000 respectively. The law does not change the requirement that expensed investments cannot exceed a business's income to be claimed as a loss.
Rationale
As 2008 began, economic indicators suggested an increased risk of recession. Federal Reserve Chairman Ben Bernanke testified before Congress that quick action was needed to stimulate the economy through targeted government spending and tax incentives. Congress moved rapidly to pass such legislation. In passing the legislation, lawmakers aimed to stimulate spending by businesses and consumers during 2008. They hoped that the targeted individual tax rebates would boost consumer spending and that targeted tax incentives would boost business spending.
Lawmakers raised the limits on conforming mortgages eligible for government insurance and GSE purchase in response to the subprime mortgage crisis. This crisis had resulted in a widespread credit crunch by late 2007. The credit crunch led to a reluctance by lenders to issue so-called jumbo mortgages for the purchase of houses that exceeded the FHA and GSE limits. The United States housing bubble had pushed house prices above those limits in many areas of the country. As interest rates rose for jumbo mortgages, fewer buyers could afford them, and house prices were being forced down toward the limits for conforming mortgages. By raising those limits, lawmakers hoped to slow or halt the decline in house prices, which threatened the financial well-being of both homeowners and banks or other financial entities holding jumbo mortgages.
The FHA loan limits also went up with the stimulus package on March 6th. The loan limit package is called "FHA Forward."
Immigration Restrictions
Taxpayers who filed their returns jointly are not eligible for payment if any of the persons on the tax return filed with an Individual Taxpayer Identification Number (ITIN) instead of a social security number. For example, if a family of five had one parent with an ITIN, no money is payable to any member of the family, including US citizens with valid social security numbers. The rule was added after the Federation for American Immigration Reform (FAIR), an anti-immigration group accused of having ties to white supremacists, lobbied the Senate for the change. The amendment was proposed by Senator John Ensign of Nevada.
As a result, many legal resident aliens and overseas military families will not receive any payment. US citizens who will not receive payments include those who file a joint tax return for 2007 and include an individual taxpayer identification number, or ITIN, on the document. In this case the entire family will be ineligible for the economic stimulus rebate President Bush announced earlier this year. US citizens may amend their tax returns to file separately, but in most cases this results in a lower deduction for dependents, thereby canceling any benefit from the stimulus payment. In many cases, it is better to forgo the stimulus payment than to file an amended tax return. At least one million legal residents and tens of thousands of troops were affected by the law, which was designed to keep illegal immigrants from getting stimulus checks.
UK rebate
UK rebate, a return of money paid by the United Kingdom for the European Union budget
The UK rebate is a rebate on the United Kingdom's contribution to the EU budget paid back to the UK government by the European Union.
History
The rebate was negotiated by UK Prime Minister Margaret Thatcher in 1984. The main reason for the rebate was that a high proportion of the EU budget (at that time 80%, now approximately 45%) is spent on the Common Agricultural Policy (or CAP), which benefits the UK much less than other countries as it has a relatively small farming sector as a proportion of GDP. Payments to the EU are largely funded by VAT returns and are roughly proportionate to the size of the economy. The rebate was also sanctioned because, at the time, the UK was the third poorest member of the 10 European Economic Community members (now the European Union).
The rebate is calculated as approximately 2/3 of the amount by which UK payments into the EU exceed EU expenditure returning to the UK. Currently the rebate is worth £3bn (GBP) a year and the UK remains one of the largest net contributors. The method of calculating the rebate is complex, but its effect is to increase contributions required from all other member states, to make up the loss from the overall budget. Germany, the Netherlands, Sweden and Austria all have their contribution to make up for the rebate capped to 25% of the figure which would otherwise apply, leaving France to make up for the main part of the increase in what Britain would pay without the rebate. Final calculations of the rebate are only made four years after the budget year in question.
Pressure for change
There has been growing pressure in recent years from various EU member states, including France, for the rebate to be scrapped. This is partly due to the fact that the recent additional member states of the EU, which are considerably poorer than the 15 pre-2004 states, will be a considerable expense on the CAP and the EU budget in general. The view is put forward by many that this makes the UK rebate harder to accommodate within the EU budget, leveraged with the moral argument that all the new entrants are substantially poorer than the UK. The new entrants, however, are likely to be net recipients of EU funds and not net contributors like the UK and only Germany will make a larger contribution to these poorer entrants.
The rebate distorts UK funding negotiations with the EU. Normally, countries and independent agencies within each country bid to receive central EU funds. The UK government is aware that 2/3 of any EU funding will in effect be deducted from the rebate and come out of UK government funds. Thus the UK has only a 1/3 incentive to apply for EU funds. Other countries, whose contributions into the budget are not affected by funds they receive back, have no incentive to moderate their requests for funds.
Furthermore, many EU grants are conditional on the recipient finding a proportion of funding from local sources, frequently national or local government. This increases the proportion coming from UK government revenue even further. This has the effect of artificially reducing EU expenditure returning to the UK and worsening the deficit which the rebate is intended to redress.
The British government has resisted campaigns to abolish the rebate and the UK has a veto on any decision by the EU to do so, a veto which the proposed European Constitution would not affect. Former Prime Minister Tony Blair said that he would veto any attempt to scrap the rebate. He was supported by many in his Cabinet and by the main opposition party, the Conservatives, as well as the majority of the British public. Supporters of the rebate argue that the distortion created by the rebate is minor compared to that created by the Common Agricultural Policy, which is expensive and has implications for free and fair trade in the EU. In addition, they point out that without the rebate, the UK would pay much more into the EU than comparably wealthy countries like France, due to structural differences between their economies.
As of 2004, France gets more than twice as much CAP funds than the UK (22% of total funds compared to the UK's 9% - see diagram) which in cash terms is a net benefit that France gets over and above what the UK gets from the CAP of €6.37bn. In comparison, the UK budget rebate for 2005 is scheduled to be approx €5.5bn. Agricultural expenditure for new member states is included in the 'other' segment of the graph. This was limited in 2004 to 25% of payment rates applying to existing member states, rising to 30% in 2005 and 100% in 2013. Total CAP expenditure is capped, so in the absence of further changes, payments to all the pre-2004 member countries will fall by 5% over this period. Some commentators claim that to a large extent, France gets twice the CAP payment received by the UK because it has twice the amount of farmland, although the extent to which there is a correlation between the two is disputed.
A popular view in the UK is that if the UK rebate were reduced with no change to the CAP, then the UK would be paying money to keep an inefficient French farming sector in business - to many British people, such an injustice would be seen to be grossly unfair. However, this argument ignores that France remains a net payer to the EU budget. If the rebate were removed without changes to the CAP then the UK would pay a net contribution of 14 times that of the French (In 2005 EU budget terms). The UK would make a net contribution of €8.25bn compared to the current contribution of €2.75bn, versus a current French net contribution of €0.59bn. UK has a slightly higher GDP than France, see List of countries by GDP (nominal), its per capita is also higher. Germany has a GDP approximately 25% higher than either France or the UK, but per capita income is comparable to the other two countries. France makes a net payment into the EU budget, so it can not be said that it receives a subsidy from any other country. Rather, France, Germany and the UK all contribute towards funding of CAP subsidies to other member states, France contributing the least of the three. However, France is the greatest contributor towards the UK rebate, due to the complex funding formula used, which means it would benefit most from its abolition. If France were not required to contribute towards the rebate, then it would be a net recipient of EU funds, despite being one of the wealthiest countries.
These contrasting positions led to deadlock at the June 2005 EU budget negotiations in Brussels. France and other states demanded the abolition of the UK rebate at this meeting. Britain dismissed this as a diplomatic manoeuvre by France to save face after their rejection of the European Constitution in a referendum two weeks before the meeting. The UK made CAP reform a prerequisite of removal of the rebate, a proposal their opponents rejected. The negotiations thus ended without an agreement being reached. In December 2005 the UK agreed to give up approximately 20% of the rebate for the period 2007-2013, on condition that the funds did not contribute to CAP payments, were matched by contributions from other countries and were only for the new member states. Spending on the CAP remained fixed, as had previously been agreed. Overall, this reduced the proportion of the budget spent on the CAP. It was agreed that the European Commission should conduct a full review of all EU spending.
http://en.wikipedia.org/wiki/Rebate
