Why Shoppers Love to Hate Rebates

Complaints soar as consumers face rejections and often fail to follow through on filing claims.

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Growing complaints inspired Best Buy and Office Max to almost completely eliminate their use of mail-in rebates.

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When Steve Bonine was shopping for a new laptop last November, he chose one that came with a $150 rebate. Three weeks after mailing in his form, he got bad news in the mail: Bonine, a retired computer specialist in Albert Lea, Minn., wasn't eligible because the company said he hadn't bought the computer at its advertised price. In Dallas, entrepreneur Daniel Pentecost had his rebate on a Toshiba high-definition DVD player similarly rejected. It was turned down because the company said it could not send rebates to PO boxes.

The experiences of Bonine and Pentecost illustrates why people love to hate rebates. They require paperwork and weeks of waiting—and sometimes are rejected for apparently no good reason. As rebates have shifted away from small discounts on grocery items to heftier cash back on pricey consumer electronics, customer dissatisfaction has also risen: Complaints to the Better Business Bureau about the $6 billion industry have grown over 350 percent since 2002, to almost 4,500 a year.

But research suggests that much of the time it's not the companies offering rebates that are creating the problem. It's the customers. Their tendency to procrastinate and inability to follow multistep directions—albeit often explained in tiny print—result in as many as half of all rebates going unfulfilled. "It's their own inability to have self-control and say, 'I'm going to get this done,' " says Tim Silk, assistant professor of marketing at the University of British Columbia.

Because people tend to believe they will redeem the rebates and then they don't, they often pay more for items than they expect. "You see something that has a rebate associated with it, and you are overly optimistic that you will do all of what's required," says John Gourville, professor of marketing at Harvard Business School.

While redemption rates are typically kept under wraps by retailers and the fulfillment companies that handle rebates, Gourville estimates that even for pricey items with rebates worth $50, the redemption rate is below 50 percent. On smaller items with rebates under $10, redemption rates are likely to be in the single digits, he says. "You might delay, inadvertently throw out one of the pieces, or never get around to it," Gourville says.

Consumer advocates argue that people's failure to redeem rebates is not entirely their own fault. Jeff Sovern, a professor at St. John's University School of Law, says companies may be deceiving customers into thinking they will redeem the rebates when they know most will not. He says he would like to see companies publicize redemption rates alongside the advertisements for rebates—a move that seems unlikely, as most retailers will not even provide those rates when asked.

Motivated by constituent complaints, some legislators have tried to force companies to fulfill rebate requests more quickly and be more receptive to customer questions and complaints. Texas state Sen. Leticia Van de Putte sponsored legislation that went into effect last fall that requires companies to pay rebates within 30 days unless they specify a different time period. "It eliminates any concerns that consumers had that businesses don't meet their promises," she says. (Companies say the lengthy time frame and irksome paperwork in processing rebates are necessary to prevent fraud.)

A North Carolina law that went into effect last October requires companies to offer consumers at least 30 days to submit their rebate, and lawmakers in other states have considered giving consumers as much as a year to turn in the forms. But research suggests giving consumers more time will have the unintended consequence of reducing redemption rates, instead of improving them. In one of Silk's experiments, he gave participants different lengths of time to turn in their rebates and found that those given only a day were almost twice as likely to redeem their reward as those given three weeks. He attributes the result largely to procrastination.

Even when the failure to redeem is the customer's own fault, it can breed negative feelings toward the company offering the rebate. Growing complaints inspired Best Buy and Office Max to almost completely eliminate their use of mail-in rebates. Customers "said they hated them, [and] we listened," says Best Buy spokeswoman Dawn Bryant. Mail-in rebates were phased out between 2005 and 2007.