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Check In the Mail

The Dollar Stretcher
by Gary Foreman

Dear Gary,
This may be silly but I hear so much about rebates and getting money
back for your products.  But how do rebates work? How can a company make 
money if they just give it back?

      Like Julie, most of us like to get a bargain. And when someone sends 
us a check for buying their product, well that's even better! And 
manufacturers offering rebates know that. They love it when we buy their 
product to get a rebate check.
      But Julie asks a good question. How can they afford to offer rebates? 
Especially the large ones. Sometimes the "after rebate" price is free. 
Don't the manufacturers need to make money to stay in business?
      Manufacturers offer rebates for a number of reasons. They can be used 
to clear extra inventory, control pricing structures and even provide some 
extra cash flow for the manufacturer.
      Sellers see rebates as a good tool to move excess inventory. It's 
also handy when a new model is about to be introduced. Automakers use this 
strategy. So do companies making appliances. They know that if prices are 
similar most consumers will choose a newer model over an older one. A 
rebate allows them to easily discount the older model and clear out the 
      Sometimes manufacturers use rebates to try out a lower price. A 
rebate allows them to easily find out whether demand would increase at the 
lower price. If it doesn't work they can always kill the rebate. On the 
other hand, once lowered it's hard to raise prices back to their original 
      You'll find that some rebates seem to go on forever. If a rebate is 
active for more than 90 days, it's probably the company's way of lowering 
the real price without changing the 'official' price. Sometimes changing 
the official price has legal consequences that they want to avoid.
      Manufacturers also realize that every sale doesn't have to be 
profitable. Sometimes they're willing to take a loss on one item in the 
hopes that you'll buy other things. The goal is to make you profitable as a 
      Computer printers are a good example. The manufacturer doesn't really 
need to make money on the printer. If it takes a rebate to get you to buy 
their model, that's fine. They're happy to make money on the ink cartridges 
that you'll be buying on a regular basis. They know that most consumers 
will spend more on the ink than they did on the printer.
      Sometimes the "shipping and handling" charges provide the profit. 
What the manufacturer gives up in product pricing they take back in 
shipping charges. Some even cheat by raising their shipping charges above 
normal levels.
      A recent trend has been for manufacturers to team up on rebates. One 
company will offer a rebate if you sign a long-term contract with another 
company. Computer manufacturers and internet service providers are big 
      Rebates also offer some interesting cash flow opportunities for 
manufacturers. Remember that they get to use your money until you actually 
cash a rebate check. It might not seem like much. But if they have hundreds 
of thousands of dollars 'in float' all the time the interest earnings add up.
      Manufacturers also know that not everyone will collect on their 
rebates. Some won't bother to send it in. Others won't follow directions 
which disqualifies their rebate. Although it's difficult to get figures, 
some experts estimate that 20% of all rebates go uncollected.
      So how can Julie make the most of rebates? She might want to consider 
some guidelines to use before making a purchase with a rebate.
      Make sure that you can and will send in the rebate form. That means 
getting the necessary receipts and proofs of purchase. Verify that there's 
enough time before expiration to send it in. And make sure that you're 
organized enough to get the forms into the mail on time.
      Don't buy just because you get a rebate. Some 'after rebate' prices 
still don't offer good value for your money. And remember to include 
shipping and handling charges in the price.
      Make sure that the rebate doesn't obligate you to any other 
contracts. Carefully read the rebate form. Understand any commitments 
you're asked to make.
      It's important for Julie to be sure that she can afford to pay for 
any purchases now. There's nothing worse than putting charges on your 
credit card and paying interest while you wait for a rebate to arrive.
      Be cautious of offers where the pre-rebate price is significantly 
higher than the item's normal price. Especially on the internet. Some 
websites are using large rebates in a desperate attempt to attract 
customers. A company that goes out of business won't be honoring it's rebates.
      When used properly, rebates can be a good tool for both the 
manufacturer and the consumer. Thanks to Julie for a good question.

Gary Foreman is a former purchasing manager who currently edits The Dollar Stretcher website. 
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