Why offer a rebate when you offer a discount? After all, are they not both ways of offering a product or service at a reduced price to the consumer, thus encouraging sales? Well, yes they are, but there are also a number of significant differences in terms of marketing and in the level of benefit for the seller.
There have been many organisations that have fallen into the phenomena known as the ‘discount trap’, that is, the positioning of their brand/product/service becomes so damaged by the act of discounting they never regain their value. To read more about this phenomenon, I suggest reading this blog entry.
The practice of offering a rebate avoids a number of pitfalls that discounting incurs, yet it retains the benefits of discounting. When looking at the process a customer goes through when making a purchase, there are a number of marked phases or states they will fall into. We categorise them as: aware; understanding; convicted; sales ready, through to; active. Offering a rebate can help to assist in moving the consumer from the convicted phase to the sales ready phase without causing damage to the perceived value of what is being purchased.
The concept of a rebate was initially used as an incentive by value-adding to a product or service, without cutting the price (i.e. value) of what was being sold, usually in the case of products or services which were, by their very nature, hard to value-add to in a physical sense. For example, an electrician might have offered a $15 rebate to a customer the next time they were called out because they didn’t have anything physical or extra to offer.
Marketers have realised the value of offering a rebate over a discount to stimulate the market, and nowadays rebates can be found in all sectors of industry, from white-goods, home appliances, and even the purchase of a new automobile.
In addition to retaining the positioning of a brand, additional bonuses to rebates are:
- customer data can be collected from rebate forms to build database.
- all discounted items are equal, but a product discounted to $99 will always be perceived as being lesser in value to a product selling for $149 with a $50 mail-in rebate.
- if the take-up rate is less than 100%, which it usually is, those rebate amounts stay in the company’s pocket.
- the process of sending in a rebate engages the consumer (i.e. filling out the form, writing the envelope, buying the stamp, posting the form, receiving the cheque).
If price is a factor that stops potential customers for purchasing your product or service, you might find that rebates are a much better option than discounting.