Business 740 Discussion Thread- The Great Rebate Runaround

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The Great Rebate Runaround In the business world today, 400 million rebates are offered every year with an estimated total face value of $6 billion (Simchi-Levi et al., 2021). Rebates, as a business practice, offer consumers the opportunity to reclaim a portion of product purchase price. However, approximately 40% of all rebates offered to consumers are never redeemed due to consumer laziness, failure to apply, or application rejection (Simchi-Levi et al., 2021). These rebates translate into extra revenues of over $2 billion each year for retailers and suppliers of products. In turn, organizations can use these rebates to increase their competitive advantage through setting measures of product value and tactically pricing products to achieve desired profits. The following forum will examine the practice of offering rebates regarding their utilization as a tool for customized pricing, their preference by manufacturers over decrease wholesale pricing, and Best Buy’s consideration of their elimination. This article describes one reason manufacturers might want to offer rebates rather than decrease wholesale price. Explain why this can be viewed as an example of customized pricing. The practice of customized pricing can be viewed as altering prices of products for specific consumers based on a combination of the desired purchase and consumer characteristics (Chen et al., 2023). With offering rebates, the practice can serve as both a pricing tool and a promotional tool as consumers focus on promotional pricing offered through rebates while paying full price for the product purchase (Simchi-Levi et al., 2021). As a result, the final purchasing price of the product is dependent upon whether the consumer makes the effort to redeem the rebate. This creates the potential for rebates to be viewed as customized pricing tools as the purchase price is reliant on the actions of consumers.

Even if all rebates were redeemed, why might manufacturers still want to offer rebates rather than decrease wholesale prices? When it comes to rebates, manufacturers commonly use them as a discounting tool for attracting consumers and maintaining customer loyalty. However, many consumers do not take advantage of the rebates due to laziness, forgetfulness, or being too busy (Simchi-Levi et al., 2021). As discussed above, the date shows on average 40% of rebates to not be redeemed. Regardless, manufacturers will likely prefer to utilize rebate practices over reducing wholesale pricing even with a 100% rebate redemption percentage. The reasoning for this preference is due in large part to the attractiveness of rebates. When comparing rebate strategy to decreased wholesale pricing, profit returns are identical when the quantity of retail orders is the same for both methods (Muzzafar et al., 2018; Simchi-Levi et al., 2021). Furthermore, rebates offer increased brand value and help attract consumers in ways that decreases in wholesale pricing do not (Elberg et al., 2019). In turn, rebates ability to attract consumers and create focus on potential discounted pricing for products leading to potential for increased profits as anything less than 100% rebate redemption puts extra money in the pocket of organizations (Simchi-Levi et al., 2021). Why do you suppose that Best Buy, rather than one of Best Buy’s big suppliers such as Sony or Panasonic, is considering eliminating rebates? While manufacturers commonly use rebates to produce discount opportunities for attracting consumers, the process surrounding the use of rebates can become costly for organizations (Yang & Dong, 2018). With Best Buy, the consideration for eliminating rebates is due in large part to the additional process costs and consumer complaints associated with their rebate program. In recent years, consumer complaints regarding rebates have seen significant

increases resulting from rebate rejections, inefficiency in application processing, and delays in rebate fulfillment resulting from third party rebate officials. As a result, Best Buy’s consideration of rebate elimination aims to save costs and decrease consumer complaints to aid in protecting brand image and reputation with their consumers (Simchi-Levi et al., 2021). In turn, while rebates can attract consumers and produce increased levels of profitability, they can present downsides for organizations making them not worthy of utilization.

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Reference Chen, W., Qiu, J., Zhao, J., Chai, Q., & Dong, Z.Y. (2023). Customized rebate pricing mechanism for virtual power plants using a hierarchical game and reinforcement learning approach. IEEE Transactions on Smart Grid , 14 (1), 424-439. https://doi.org/10.1109/TSG.2022.3185138 Elberg, A., Gardete, P.M., Macera, R., & Noton, C. (2019). Dynamic effects of price promotions: Field evidence, consumer search, and supply-side implications. Quantitative Marketing and Economics , 17 , 1-58. https://doi-org.ezproxy.liberty.edu/10.1007/s11129- 018-9205-5 Muzaffar, A., Malik, M.N., & Rashid, A. (2018). Rebate mechanism for the manufacturer in two-level supply chains. Asia Pacific Management Review , 23 (4), 301-309. https://doi.org/10.1016/j.apmrv.2018.01.001 Simchi-Levi, D., Kaminsky, P., & Semichi-Levi, E. (2021). Designing and managing the supply chain: Concepts, strategies and case studies (4 th Edition). Richard D. Irwin, Inc. Yang, L., & Dong, S. (2018). Rebate strategy to stimulate online customer reviews. International

Journal of Production Economics , 204 , 99-107. https://doi.org/10.1016/j.ijpe.2018.07.032

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