HEWLETT PACKARD MICRO CENTER
Paul Sakuma  /  AP
Once a low-profile promotion in which consumers might get back a buck or two, rebates are now a heavily advertised strategy to move merchandise, especially in the big-ticket world of consumer electronics.
By
msnbc.com contributor
updated 2/24/2006 6:43:34 PM ET 2006-02-24T23:43:34

Buy that new laptop computer, get a $150 rebate. It sounded like a sweet deal to Margaret Romanowski, but it's gone sour now.

The 53-year-old environmental consultant from Placerville, Calif., says she got the rebate runaround three separate times last summer on a laptop, printer and cell phone. Each product promised rebates of $100 to $150, and each proved challenging to collect.  After filing her paperwork twice, she finally got the $100 rebate on a Hewlett-Packard printer. But she's still waiting for a $150 rebate from Best Buy on her laptop and $100 from T-Mobile for the cell phone, despite repeated phone calls, letters and re-submissions of documents.

"I'm not buying another thing with a rebate," said Romanowski. "Next time, I'm going on store price only."

Her experience highlights the changing nature of the rebate business. Once a low-profile promotion in which consumers might get back a buck or two, rebates are now a heavily advertised strategy to move merchandise, especially in the big-ticket world of consumer electronics. Rebates of more than $100 are common, with some ranging up to $400 or more.

Easy money for vendors, retailers
But according to critics, there's a reason why stores and manufacturers are increasingly advertising rebates -- applying for them is a complicated and difficult task. Many people simply don't bother, and those that do have trouble getting their money back. Either way, consumers too often end up with no rebate - and the company gets to keep the money.

Web sites such as Rip-off Report.com and ConsumerAffairs.com are rife with tales of rebate checks never received and ongoing battles with companies such as Best Buy, CompUSA, and Circuit City on the retail side, and Hewlett-Packard and Dell on the vendor side. Harvey Rosenfield, founder of the consumer watchdog group Foundation for Taxpayer and Consumer Rights, says the list of complaints goes on and on from people e-mailing their complaints to his website.

"Rebates are becoming a rip-off," Rosenfield said. "Requesting one is like filling out a federal tax return, except that these companies have an incentive to keep the customer's money. The reason they do mail-in rebates is because a third of the people never send in their forms, and that increases their margins. It's an easy way for companies to make money."

The percentage of consumers who actually collect their rebates ranges from less than 10 percent to about 30 percent, depending on the product and the dollar amount involved. Meanwhile the number of rebates is growing. Hal Stinchfield, CEO of Promotional Marketing Insights, a consulting firm in Orono, Minn., estimates that 400 million rebates are offered annually, which amounts to more than $6 billion of consumers’ cash.

Manufacturers and retailers see rebates as an effective way to introduce consumers to a new product or to clear out dated product lines. They then contract with fulfillment houses to process rebates, verify them and mail out the checks. Some of the fulfillment houses have gotten into trouble with government agencies over the years for promising low rebate redemption rates to their corporate customers.

Stinchfield says retailers and manufacturers are not out to get their consumers. “That’s akin to brand suicide. But they have not kept up in designing rebate programs with proper structure, or communicating and executing them. So that lack of expertise has got them in trouble with their consumers."

Nevertheless, he says that retailers will probably never give up on rebates. “They’re effective and they move product sales. One featured rebate offer in a Sunday morning ad insert can increase sales by 500 percent."

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Vigilence is key for customers
Edgar Dworsky has found that rebate fulfillment houses can give friendly service to their customers – but only if customers keep on their case. Dworsky, founder of Internet consumer resource guide Consumerworld.org, tried to claim a rebate from Best Buy for a product he bought the day after Thanksgiving, but got a letter that his rebate was rejected due to an incorrect invoice number. When he called the fulfillment house, customer service told him the problem was due to glitches in its computer system, which would be corrected in a week. When the week passed with no rebate, Dworsky called again and customer service promised to speed up his rebate, which left him wondering if he would have ever gotten his money if he didn’t call.

"You just wonder how computer glitches can cause a problem as major as that, and then you wonder how many consumers won’t follow through and call to ask that their rebate be hurried through,” he said. “It’s almost too easy for them, and it sometimes seems like it’s used as an incentive for fulfillment houses and manufacturers to deny their share of rebates."

David Bookbinder is a pro at making companies keep their promises on rebates. As a computer technician and owner of Total PC Support in Revere, Mass., he claims more than 100 mail-in rebates annually, which saves him and his customers thousands of dollars.  He scans the rebate offer, receipt and UPC code off the box into his computer, which gives him a date eight weeks in the future so he can call if the rebate has not arrived by then. If it hasn’t, he calls up the customer service number to inquire and if he doesn’t get a good answer, he automatically files complaints with the Better Business Bureau, the Federal Trade Commission and the state attorney general.

"I get most rebates back but if they don’t honor it, I make sure they do,” Bookbinder said. I don’t even wait any more to file complaints. They’ve had a reasonable time to process, they’ve done this practice for a while, so there’s no excuse. If they’re holding money longer to help their bottom lime, my bottom line is making sure they don’t scam me."

Bookbinder says he doesn’t even bother with the fulfillment house’s customer service and contacts the manufacturer directly to let them know he has filed a complaint, which usually gets him quick results. “Customer service is virtually useless, because employees there are getting minimum wage, reading off rote answers from a script and have no stake in the company, so they couldn’t care less. If you want the right answer, you must go to the top."

Government investigations and retail reform
More states are taking consumer complaints seriously and filing lawsuits against fulfillment houses for shady practices. Earlier this month, Iowa’s Attorney General filed a lawsuit against Young America Corp., the nation’s largest fulfillment company that has handled rebate programs for Target, Best Buy, Hewlett-Packard and other major retailers and manufacturers, alleging that instead of reporting unclaimed rebate checks to Iowans worth $43 million, the company pocketed the money instead.

Massachusetts’ treasurer also filed suit against Young America last November for the same reason, stating that the fulfillment house owes millions to state residents and $129 million to consumers nationwide.

Lawsuits have also been filed against major retailers as well. In May 2004, Best Buy agreed to pay $135,000 to the state of New Jersey as a settlement in a deceptive-advertising case related to rebates. A year later, it announced that it would phase out its system of mail-in rebates from manufacturers within two years because so many customers were complaining about them.

Other retailers are simplifying the process, figuring fewer hassles along the way will build customer loyalty and raise sales. Rite Aid Corp, Costco and BJ's Wholesale Club are a few that now allow customers to redeem their rebates online.

But the largest pushers of rebates are tech-heavy retailers, many of which are not moving quickly to change their processes. Staples is way ahead of the pack with its Easy Rebates system that lets consumers apply online for rebates without having to send in UPC codes or receipts. It also allows them to track the progress of their rebates online and eventually notifies them when their rebate check has been sent. Staples holds submissions for 14 days until its return policy expires to avoid fraud, but it typically gets checks out in three weeks compared to the industry average of 10 to 13 weeks.

Jim Sherlock, Staples’ director of sales and merchandise says that Easy Rebates has processed 8 million rebates since it launched in November 2004. “We don’t process software rebates on there because it can get too complicated, but all other manufacturer rebates and all Staples rebates on there, which totals about 85 percent of all rebates we offer."

Promotional Marketing Insights’ Stinchfield says it’s highly unlikely that retailers will phase out rebates because the market is too competitive, but he does think they’ll start to offer more paperless rebates and gift cards. “They do realize that they have to get smarter about how to structure, communicate and follow through on rebates to make their customers happy.”

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