Observations: The Tipping Point for Rebates?

by Jim Lyons

The Hard Copy Observer, September 2006

Who among us has not been lured by a rebate—that age-old offer to save money either instantly or after mailing in a few “simple” forms? This type of promotion has been a mainstay in many consumer markets, including the printing and imaging industry. This month, Jim Lyons, a 20-year veteran of the printing and imaging industry, leads us through the rebate maze and shows us what may be at the other end.

Reading the business press lately, or even skimming the Sunday newspaper, one could easily conclude that the demise of the mail-in rebate is at hand. Computer and printer supplier Dell and big-box retailer OfficeMax have been vocal about joining the rebate-ending bandwagon in recent months, following in the footsteps of rebate reformers Staples and Best Buy.

Most of these companies are not immediately terminating the use of rebates (OfficeMax being the exception) but are simplifying or phasing them out over time. But are these computer and printer sellers just delaying the inevitable? The time that these retailers must spend to root rebates out of their systems demonstrates how ingrained rebates have become as a merchandising tool for selling their wares. Some observers have described this movement as consumer power at its best, with consumers expunging from the market one of their biggest complaints about buying at retail. But is this assessment accurate?

Mail-in rebates (MIRs) have long been an important part of the printing and imaging business, enabling vendors to break through long-standing price barriers to offer products such as the “first sub-$100 monochrome laser printer” and the “first sub-$500 color laser printer.” Buy.com recently offered a $50 MIR on the Samsung ML-2010 to break the $40 price barrier. While this price barrier was not one that industry participants had long been striving to best, offering a monochrome laser for less than $40 is still a jaw-dropping feat. (As I write this column, Staples is again offering the Samsung CLP-510 color laser at a rebate-fueled $199.99.) Beyond their value in helping vendors to break through symbolic price barriers, rebates have also helped vendors to prosper by enabling them to move older inventory to make way for new product lines and by increasing the installed base of devices that use imaging supplies.

When did rebates begin in our business? Their presence was noted in the very first edition of The Hard Copy Observer from October 1991, which contains several references to rebate promotions on products such as Apple LaserWriter printers, GCC BLP and PLP printers, and the NEC SilentWriter printer. A simple text search of the Hard Copy Observer Archives shows that, by 1993, every issue contained multiple references to rebates. The chart above is a quantitative study of references to the terms rebate and rebates in the Observer, and rarely does a study yield such a definitively shaped curve. The number of instances of these terms in the Observer peaked at an even 500 in 1999 and has been declining every year since.

One explanation for the downward trend is an underlying change in how The Hard Copy Observer reports on the industry, and in fact, a major editorial section that closely followed retail pricing and accounted for many of the references to rebates began in 1995 and was discontinued in 2003. I’m not advancing causal relationships here—after all, this is not Freakonomics. Nevertheless, the data shown in the chart speaks for itself and certainly surprised me!

While nothing is set in stone, it does indeed seem that rebates will continue to diminish in importance in the printing and imaging industry. I plan to revisit this topic in a future column to review the accuracy of this prediction.

How about rebates in general? With “rebate abatement” in the news, are rebates really on their way out? What I consider the definitive article on rebates, entitled “The Great Rebate Runaround, ”appeared in the December 5, 2005, issue of Business Week. In the article, lead writer Brian Grow details widespread customer frustration and the inner workings of the rebate game, including the profit-building “breakage” and “slippage” factors. These innocent-sounding terms refer to the percentage of buyers who never complete their MIR applications and the percentage of buyers who do fill in the applications but fail to cash their rebate checks. In an e-mailed response to questions for this article, Grow acknowledged that while the rebate process is changing, it will never go away altogether.

And that, I must confess, is good news to me. As a gadget lover and bargain hunter, I like rebates. I conscientiously follow the rebate fan’s best practices—be organized, send the rebates in the same day you make the purchase, fill in the forms legibly, and follow up if needed. And most of all, I just love scanning all those receipts into my personal document-management system, and then watching those neatly printed envelopes chugging out of my HP LaserJet printer!