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Why do companies use mail in rebates? Are they a scam or is there a way to use them without getting shafted?

I've used mail in rebates before but it seems like a gamble – half the time I end up having to call a "rebate processing centre" a few times – and they're usually not the retailer but some shady third party.

Should mail in rebates be avoided by money-savvy individuals, or is there a way to use them effectively? Are there some kinds of mail-in-rebates that should always be avoided, and others that are acceptable to participate in?

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It's an effective way to achieve market segmentation without having to ask your customers how rich they are, and you get the benefit of finding out additional information like their address, email etc. The principle is similar to coupons on cereal boxes, anybody can get the rebate/discount if they go to the effort, but people who are cash rich/time poor are less likely to do so than those that really need the money.

Joel Spolsky wrote about this and various other pricing mechanisms a while back, I like to reference the article every few weeks. It's well worth a read.

Now, if you're retired and living off of social security, $7 an hour sounds pretty good, so you do it, but if you're a stock analyst at Merrill Lynch getting paid $12,000,000 a year to say nice things about piece-of-junk Internet companies, working for $7 an hour is a joke, and you're not going to clip coupons. Heck, in one hour you could issue "buy" recommendations on ten piece-of-junk Internet companies! So coupons are a way for consumer products companies to charge two different prices and effectively segment their market into two. Mail-in rebates are pretty much the same as coupons, with some other twists like the fact that they reveal your address, so you can be direct marketed to in the future.

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    OOOOOOooooohhhhhhh. That makes some sense. I think Joel is a moof but I can't really argue with that article – MrChrister Jan 19 '10 at 16:45
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I've had positive experiences and negative ones. One key is to be sure you have followed ALL of the instructions. Once I forgot a small piece of information and lost out on $40. I was not happy. A few weeks ago I got a rebate for $50 from Staples, and it couldn't have been simpler.

Stick with big companies and make sure you do everything on time.

Companies use rebates because they know some people will forget, mess up, or not use the rebate. They make a ton of money off of unused rebates.

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    +1 They make money when you mess up. I would personally love it if we as consumers would shun rebates. – MrChrister Jan 19 '10 at 16:30
  • @MrChrister - if "we as consumers would shun rebates", companies would make more than if we don't :) – warren Nov 15 '13 at 16:24
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    @warren - my dream is that companies would still compete on price, and therefore have to lower the price to the rebated rate without hoops to jump through. – MrChrister Nov 15 '13 at 16:28
  • @MrChrister - I like that idea, too ... but in the absence of the implementation of that idea, rebates aren't "bad" :) – warren Nov 15 '13 at 17:04
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Unfortunately too many companies view a Mail in rebate as an unwelcome cost instead of as a customer interaction issue, and it gives the company a bad reputation when someone gets stiffed on the mail in rebate, and it also has basically ruined the concept to a large degree. Many people will simply regard the rebate as worthless and evaluate the product based on the full price - killing what the company wanted to get out of it (Rich Seller hit the nail on the head), which is why you see "instant rebates" etc.

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  • +1. You make a very good point - they should be very careful handling rebates since it can turn a customer against them if it goes sour. – Chris W. Rea Jan 20 '10 at 1:16
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Chiming in with other answers that incriminate market segmentation attempts, I would like to offer this Seth Godin video where (among other things) he speaks about breakage, the art of making coupon redemption so difficult that most people get it wrong and do not redeem them.

Oh, and when comparing/deciding which/whether to buy, I always use the up-front price. Don't want to encourage the wrong behavior.

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Rebates are a great way to give discounts to customers who are cost sensitive.

A long time ago, I worked for a retailer that extensively used rebates as a marketing tool. From my point of view, about 90% of the complaints that I investigated were a result of people not following directions. Biggest single thing was not sending original documentation when it was called for.

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There are many reasons, some already covered by other answers. I have a blog post on the issue here, and I'll summarize:

  1. Gives a feeling of a discount. Psychologically, when you see "$20" for something that costs $40, you feel like a bargain. Some won't even notice the tiny "after rebate" in the corner, and might discover at the cashier the full price and pay anyway.
  2. People forget. By the time you got home you might have forgotten, missed the postmark day, and voila - no rebate for you.
  3. Mistakes - as mentioned before.
  4. People forget about the rebates, and miss them when they come back in mail. Some think its spam mail, some think its a scam, some forget to deposit the check on time, etc.
  5. Using rebate debit cards might leave some balance on the card which will expire (e.g.: you get a $20 rebate, pay at the grocery store $19.96, and leave $0.04 lost forever).
  6. And of course one of the most important differences from an instant rebate - quantity limitation. Instant rebate is instant and for everyone. Mail-in rebate is limited per address/person, and you cannot get the discount on multiple items (or more than so many). If you buy 3 items and the MIR is limited to 1 - you pay full price for the other two, whereas with instant rebate - you get discount on all the 3.
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  • Page not found on your blog post..... – Pacerier Nov 13 '13 at 6:17
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Some notable percentage of buyers won't even try to do the rebate, or will forget - so it's a [relatively] cheap incentive to the consumer than most will miss out on.

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Not so much a scam, if you fill the required paperwork and actually take time to mail it in assuming it's done correctly; you will get your money.

That being said, having a mail-in rebate program is usually a win-win for the seller. While they may have to pay a small fee to a third party who handles the rebate almost always this influences a potential buyer to choose a specific product over the alternative.

The seller knows very well that very few people will actually go through with it. And yes, they do often make the process needlessly complicated and long as a deterrent.

Plus, let's be real, no one likes sending out physical letters anymore.

From a marketing standpoint the mail-in rebate is a brilliant idea. However, it's usually more of an annoyance for the consumer.

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