Rebate Dissertation Timothy Silk

The following abstract was originally posted at http://www.gsm.uci.edu/script/Colloquia/ColloquiaArchive.asp?AcademicArea=Marketing&useImage=marketingHeader

Why Do We Buy but Fail to Redeem? SPEAKER: Mr. Timothy G. Silk
UNIVERSITY: University of Florida
DATE: 10/21/2003

ABSTRACT: Mail-in rebates are popular with retailers and manufacturers because they are used to hit key price points and drive demand, while limiting the number of consumers that purchase at the discounted price. As explained by one retailer, “Manufacturers love rebates because redemption rates are close to none… they get people into stores, but when it comes time to collect, few people follow through. And this is just what the manufacturer has in mind” (Greenman 1999). The dissertation attempts to explain this phenomenon, known as breakage, which occurs when consumers are enticed to purchase as a result of a rebate offer but subsequently fail to request the funds to which they are entitled (Jolson, Weiner, and Rosecky 1987).

Through a series of experiments that track the purchase and redemption of a real rebate offer, I show that breakage can be attributed to the discrepancy between consumers’ subjective probability of redeeming and their actual redemption behavior. Increasing the rebate amount or the length of the redemption period increases a consumer’s confidence of redemption and the likelihood of purchasing the product. Yet, confidence in redemption is not a key driver of actual redemption behavior. Increasing a rebate amount has much less impact on redemption behavior than purchase behavior and increasing the length of a redemption period decreases redemptions. These results suggest that the rebate industry’s trend toward shorter redemption periods (an effort to limit redemption rates) may be self-defeating in two ways: shorter redemption periods can 1) dramatically decrease the proportion of consumers who purchase a rebate offer, and 2) substantially increase the proportion of consumers who apply for the rebate. Implications for managers and regulators are discussed.

The full text of this paper is available at http://catalyst.gsm.uci.edu/tools/dl_public.cat?year=2003&file_id=126&type=cal&name=Rebates-Silkjobtalkpaper.pdf

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