Arnold Kling  

A Swindle, not a Joke

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In this post, I joked about the complexity of mail-in rebate forms. It turns out that this is not a joke. It is in fact a deliberate swindle, which I am now quite sorry that I fell for. Ed Foster writes,


the average claim rate on the rebate fulfillment house's table was about 25 percent.

"Now, here's the interesting part," the reader wrote. "The rebate fulfillment house will GUARANTEE IN WRITING to the manufacturer that the percentage of rebates claimed as presented in this table will not be exceeded. They will eat the cost if it is."

Small wonder then that the rebate house sometimes just can't see that receipt you're certain you included in the envelope. If they wind up paying the rebates out of their own pocket, it makes sense to just pay off those who scream the loudest. And small wonder the vendors are tempted to offer these magical discounts on their products. If one rebate fulfillment house won't guarantee to keep your costs low enough, just use a slightly sleazier one that will.

More on my experience is here. The CompUSA rebate center was particularly hard-nosed. Does CompUSA know that I bought the products there? Of course they do. But they now claim that the rebate requires that I send the UPC code for two products, not just the product on which I was to get the rebate. The fact that I bought both products means nothing. The fact that I am "not in compliance" with their (new) rules is what they rest their case on.

For Discussion. The rebate game is widespread in the computer industry. Is there a tendency for cutthroat practices to emerge in certain types of businesses but not others?


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CATEGORIES: Business Economics



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The author at Indefinite Articles in a related article titled Rebates == Deliberate Swindle? writes:
    This article and the ones it reference reveal the dirty little secret of the rebate industry - the rebate companies have a strong financial incentive NOT to pay you. Given that, and given that you have no idea whether your... [Tracked on February 3, 2005 10:51 AM]
The author at Catallarchy in a related article titled Carnival of the Capitalists writes:
    Welcome to this week's Carnival of the Capitalists hosted by Catallarchy. It's always a pleasure to participate in the best "carnival" in the blogosphere, and the entries have only gotten better this second time around. We have 40 outstanding ent... [Tracked on February 7, 2005 8:47 AM]
COMMENTS (25 to date)
Chris writes:

I just sent in the rebate forms this week for a 802.11g wireless router that (assuming I get the rebates) will cost me $10 net.

However, Best Buy did make it easy for me, giving me multiple copies of the receipt and rebate forms preprinted with all the product info. All I had to do was fill in name and address, attach UPC code, and mail.

It seems like commodity items in the PC industry use this tactic most frequently. Faced with 20 wireless routers (or hard drives, or monitors, or whatever) that all look the same, it's natural for the consumer to pick with one with the lowest advertised price.

B. Tental writes:

Many people have come to the same conclusion. Blogs such as Techdirt and Slashdot regularly feature negative articles on rebate programs. I refuse to send in rabates and usually avoid stores like CompUSA and Fry's. Walmart for instance has few rebates and still carries low prices.

Edge writes:

FWIW, I got back two rebate checks from Dell, and one for a DLink router from Best Buy.

Somewhat different angle on this. Does reputation of the party offering the rebate correlate to your ability to get the rebate without going to court?

It would seem pretty simple. Well, maybe not. But shouldn't somebody set up a "Rebate" rating system online with rating systems like EBay's vendor ratings? Or maybe we should just stop buying products that offer rebates...

Dr. Fager writes:

I never received a promised rebate from Norton. I was skeptical when I mailed it in, they sent a followup requiring more documentation which I also sent them, to no avail.

Here's what I don't understand. Aren't these companies short sighted? Soon it will be time for me to re-up with them. Fat chance.

Bernard Yomtov writes:

Gee. You mean the market hasn't solved this problem?

Arnold Kling writes:

Bernard,
I think there is a market failure. Too many stupid consumers like me.

The best cure would be a disclosure of the incentive structure of the rebate processors.

Boonton writes:
Gee. You mean the market hasn't solved this problem?

There sounds like there is a solution. Let some trial lawyer who wants to make a few bucks file a class-action lawsuit against the rebate house for false advertising & consumer fraud.

Mark Horn writes:

As someone who has been doing rebates for many years, I have never once failed to receive a rebate that I applied for. However, that doesn't keep me from being paranoid. I've read the horror stories, so I make a copy of everything I send them and date that copy. I track all my rebates in my personal finance software. (I track it in roughly the same way you'd track an accounts receivable.)

So, I don't think this is a widespread scam. I'm sure there are some one-off scams out there, but I'm not convinced that it's the general case. I think that the rebate factory is taking a calculated risk. They know that very few people will fill out the paperwork. If more people fill out the paperwork than they anticipated, then they'll take the loss. But people's laziness factor has not changed dramatically. So, until that happens, then the rebate factories will have to renegotiate their contracts. If everyone starts filing rebates, rebates will disappear because the factories won't be able to effectively negotiate a contract that will be profitable.

And if it is a scam more generally than my experience would suggest, then one of two things will happen.

  • People will stop purchasing products from Best Buy & Circuit City and transfer instead to Sam's Club and Walmart, or
  • A class action lawsuit will be filed and ejudicated.
  • Bernard Yomtov writes:

    Arnold,

    If stupid consumers constitute a market failure then there are an awful lot of market failures around.

    I like boonton's notion - that class action against consumer fraud constitutes a kind of free-lance law enforcement. But lots of conservatives want to rein this sort of thing in, so I think it's fair to ask what an alternative enforcement mechanism would be.

    Arnold Kling writes:

    "So, I don't think this is a widespread scam."

    If it's not a widespread scam, then why does the company that absolutely knows that I bought the requisite products not give me the rebate? The company does not deny that I bought the products. They deny that I submitted the proper paperwork. That may be technically legal, but it definitely is a scam.

    Mark Horn writes:

    Arnold,

    I don't know. Is there some way that we can resolve your experience and mine? Both are anecdotal. I don't know if your experience is one out of a million or my experience is one out of a million. But given my success rate, I'm going to tend to see your experience as one off. I suspect that you see my experience as one off.

    My suggestion to you is to do one of two things:

  • stop purchasing from stores that offer a rebate
  • see if you have the basis for a class action lawsuit

  • Either case, if the problem is rampant enough, should disincent rebate scamming.

    As far as it being a scam despite the fact that you submitted improper paperwork, that's one way of looking at it. Isn't a different way of looking at it that the qualifications for the rebate aren't just purchasing the product, but also properly submitting the paperwork?

    Scott writes:

    There is a lot of squawking at tivocommunity.com about problems with rebates, but I've gotten both of my $50 rebates on TiVos with no problem. I've also received all the rebates on hard drives and other computer products that I've sent for.

    I have heard that the rebate processing companies promise a certain redemption rate, but had not heard that they pay for the overage -- that certainly does increase the temptation for outright fraud. I'd guess that sending your rebate in right away is a good strategy.

    Not a huge fan of rebates -- I'm particularly concerned that they use your information for spam and telemarketing. But I'll keep doing them when the payback is over $25.

    Mark Horn writes:

    If markets are a discovery process, maybe the solution is to use profit motive to discover the truth. I seem to have a comparative advanage at getting rebates. Maybe I should start a business. With this business I will offer to submit all of your rebate paperwork for you (and for anyone who's too lazy to do it themselves). The rebate checks will come to you, but I'll do all the paperwork and keep all of the documentation. I'll do this for a periodic subscription fee (if you get a lot of rebates) or a one time fee (if you only do it occasionally).

    If I'm right, then my business should flourish by simplifying the rebate process and bringing in more lazy people. Which, of course, will result in rebate houses not being able to meet their contractual commitments, and shutting down. Result: end of rebates.

    If you're right, then when enough people complain to me that they didn't receive their rebates, I'll have all of the documentation and all of the contact information in order to organize a class action lawsuit. When I win, rebates will either be cleaned up and revert to the above scenario, or they won't be and I'll continue to sue all the scammers out of existance. Result: end of rebates.

    I have to think about a way that I could make my profit from this company worth the effort, as well as make your effort in sending me the information worth my fee. That sounds pretty tricky. At best, I think I'm not in for very large margins.

    So my conclusion is that I'm not going to do this. My profit is maximized by spending a much smaller amount of effort getting just my rebates and all of the rest of you subsidizing them by not filling out your paperwork. And if it really is a scam, I'll just stop buying products from retailers who offer rebates. We should all do this. Otherwise, what we're all saying is that we approve of retailers who advertise prices lower than what can actually be delivered. If this is acceptable to most people, why not let them continue to participate. You're certainly welcome to not participate by purchasing the products you need elsewhere.

    Is there an error in the way that I see this?

    Lawrance George Lux writes:

    The theory behind Rebates should be examined, as it is a Scam practice to confuse Consumer choice. Retailers are allowed to claim the lowest-priced product with Rebate, but hide the expected rate of Rebate redemption. Expression of the rate of fulfillment insists that actual Price be listed for the Product.

    Federal Trade law should insist Retailers must present the Rebate to the Customers in Cash, filling out the Rebate forms themselves. The Result: the short life of Rebates will come to an end. lgl

    John Thacker writes:

    Interestingly, Staples is currently running an ad campaign featuring people complaining about these types of rebate programs, and boasting of their extremely-easy-to-use rebate program that requires only putting in one number generated on the receipt.

    So somebody in the market is responding.

    Though I imagine it's still a useful sort of price discrimination, like coupons, for many retailers. People who will go to the hassle for money off will get it; those who won't, won't.

    mcwop writes:
    I like boonton's notion - that class action against consumer fraud constitutes a kind of free-lance law enforcement. But lots of conservatives want to rein this sort of thing in, so I think it's fair to ask what an alternative enforcement mechanism would be.

    And then companies may simply stop offering rebates. Kinda like the class action suit against MD BCBS for "overpayment" of premiums. I get a check for 14 cents, and my premiums jump $20 a month. The lawyers get rich.

    Bernard Yomtov writes:

    Mcwop,

    Yes. They may stop offering rebates. At least the ones who don't intend to actually pay the rebates may stop.

    Anyway, I'm glad to listen to effective alternative methods of preventing or punishing this kind of swindle.

    KH writes:

    Rebates are not about pricing adjustments or discounts. They are like store circular coupons -- they are a form of advertisement. They are designed to attract attention and maybe to entice someone to buy something they are on the fence about. Interestingly, often the more complex the requirements the higher the purchase rate.

    Dewey Munson writes:

    How come all you Adam Smith devotees are surprised when you see his observation in action?

    How about working on all those Cable/Telephone promotions wih inches of fine print loaded with if's and's and but's.?

    Reading labels in the supermarket? The economic world is loaded with small time scams.

    jim linnane writes:

    Rebates suck, but Staples has the easiest rebate policies. You can do it on line, and if you insist on using the mail they give you a copy of your receipt with all the instructions written on the back. That said, consider shopping at WalMart if they have what you want and not some cheap knockoff. Sometimes their prices are a few dollars more than what you might pay at a specialty retailer when you factor in the rebate, but there is no hassle unless you consider it a hassle to shop in their crowded, slovenly venues.

    Tim Worstall writes:

    Arnold,
    You almost answer your own question:

    For Discussion. The rebate game is widespread in the computer industry. Is there a tendency for cutthroat practices to emerge in certain types of businesses but not others?

    Try reading the disclaimer on a software package sometime. The entire industry is rife with this sort of behaviour.

    Fred Boness writes:

    In 1974 I was a poor engineering student. (Poor in the sense of no money, of course.) Calculators were new and expensive. I noted that with the rebate I could just barely afford a Texas Instruments calculator.

    I got stiffed on the rebate. I have not bought another Texas Instruments product since.

    bill shoe writes:

    Why are "instant rebates" used? How do they help the stores? One possiblity: I noticed on a mail-in rebate that by claiming the rebate you give up the ability to return the product for any reason. Does an "instant rebate" at checkout also eliminate your ability to return something?

    Ann writes:

    I can see how rebates might allow useful price-discrimination for retailers, but there still seems to be a lot of dead-weight costs.

    I view rebates as a part time job - you put in time and effort, and you'll eventually get paid. From that standpoint, the per hour pay rate may be fairly high, plus you don't have to pay the usual taxes on the money you earn, but it's still extra work.

    I simply ignore the rebate and look at the direct price, since I'm not looking for a second job. If I was, I would do consulting, not rebates. But perhaps this is more flexible than a second 'official' job?

    I think you are on to something here. I've been hit by this scam without picking up that it was a scam, and I think of myself as an astute shopper.
    I'm guessing stiffing people on rebates is a billion dollar industry. No data, just a guess.
    One approach would be to go to the newspapers where these rebates are advertized, ask them to make a formal policy that ads for rebates would have to disclose the redemption rate. Current: Widget free with $50 rebate! New: Widget free with $50 rebate.
    [fine print: In 2004, 28% of our widget buyers recieved their rebates.]
    If paper refuses, prepare to name then as co-conspirator in consumer fraud action.
    Some newspapers have consumer advocate reporters - this would be a good story.
    Some states have strong consumer protection statutes. Some I would say are too strong, others too weak. I am not counseling blackmail. More like greenmail - document a legitimate problem, let the company buy you off if they choose.
    I am a lawyer, in Indiana, not a very good one, and I don't do class actions, but I'd be willing to help find one who would, if there's interest in following through.

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