Rebate Strategies
For the past 30-plus years, mail-in rebates — MIRs — have been a popular and viable sales promotion strategy for marketers to increase sales of their products.
Some retailers and manufacturers have recently discontinued their use of MIRs and replaced the strategy with instant rebates (IRs). Both strategies have their advantages and disadvantages. However, there’s a misconception that the two are interchangeable strategies.
The term MIR is limiting as it describes only one means of how consumers can respond to an offer. A new term is needed to take into account how the Internet figures in rebates.
Let’s coin the phrase “Customer Initiated Rebate” (CIR). The key to this concept is not whether the consumer mails in, submits on the Internet or figures out another means to respond to a rebate offer.
The key is that the customer has to take the initiative or action to receive the benefit of the rebate. If the customer does nothing, they will not get the rebate.
In the case of an IR, all customers will immediately receive the rebate at the time of purchase. An IR is, in essence, the sale price.
With this comparison, why would anyone use a CIR over an IR? Clearly an IR is a better customer experience, correct? Maybe not. The answer lies in the make up of the target customer group/s. Let’s review some examples.
Homogeneous Customer Group
If all customers for a given product are similar in preferences and, most importantly, price sensitivity, then IR is the best strategy. That is because with the same price sensitivity all customers are willing to pay up to approximately the same price for that product.
High-end French wine is a great example. It is a luxury discretionary item that can only be purchased and enjoyed by those who can afford it. Whether the bottle of 1992 Bordeaux on a menu costs $200 or $250, the same consumers are going to be interested in ordering the wine with their meal.
A $100 CIR would not attract a significantly new audience to try the wine. Those who already wanted it will buy it. An IR or sale price may inspire them to order a second bottle for that dinner.
Diverse Customer Group
Take the example of tax preparation software. No matter who you are, you have to submit taxes each year. Tax preparation software is not the only option for submitting taxes, but it is an alternative millions of people use each year. Whether one’s earnings are $20,000 or $250,000, tax software can be of great use.
In offering a CIR, those consumers who are very price sensitive will take the necessary actions to receive the $5 to $10 rebate on the product. People who are not sensitive to price (price insensitive) will not take the time. They accept the price.
The challenge with an IR in this case is leaving too much or too little money on the table. Price too high, and price sensitive shoppers will elect to manually prepare their taxes and forego purchasing the software. Price too low, money that price insensitive shoppers would have gladly paid is left behind.
Jim Wohlever joined Young America Corp. in 2006 as president and CEO. Young America is marketing fulfillment firm specializing in rebate, loyalty and retention programs. He can be contacted at [email protected]
Session: Mitigating Risks on Rebate Programs www.thepromoevent.com
