There is a lot of debate in the promotional marketing world about instant discounts versus rebates. While manufacturers often prefer rebates because they allow them to collect consumer information and manage promotional budgets, retailers have pushed for instant discounting as they perceive it as an improved consumer experience.
In this three-part series, we will review the case for utilizing rebates over instant discounts for both manufacturers and retailers. This will include an emphasis on the challenges marketers face to win new customers and incentivize behavior that drives revenue in a crowded marketplace while also managing shrinking marketing budgets.
As we begin to look at the debate about instant discounts versus rebates, it is important to first understand how these two different promotional tactics function and common consumer experiences.
When marketers use an instant discount as promotional vehicle, they cut the offered price at the point of sale and advertise that the promotion offers a limited-time percentage off. These types of discounts are often categorized as a marketing strategy rather than a sales strategy.
Although instant discounts offer a fast and simple process that does not require the consumer to take any additional steps—eliminating promotional friction—such discounts offer limited consumer engagement with the promotion and the brand itself. Brand engagement stops at checkout.
In addition, when products are marked down with a discount, this is a direct reduction in margin for the retailer and/or manufacturer of the product. In promotional cases where manufacturers are attempting to drive sales, they typically will be responsible for the reduction in price, while retailers may participate in the margin impact in other cases.
Rebates or Purchase Incentives
Promotional marketers use rebates as a sales strategy that directly incentivizes consumers to purchase the desired product and provide evidence of that purchase back to the rebate sponsor. Rebates are paid out after the consumer has purchased the product and are typically advertised as a buy-and-get promotion for completing the required action.
Consumers will engage with the promotion and brand multiple times during a rebate process including purchase, submission, and reward. Each step of this process is branded with the program sponsor’s key messaging, and can also extend to the usage of the reward in the case of providing branded prepaid cards or gift cards. While this requires the consumer to take additional steps beyond purchasing the product, there are techniques to ensure that the process remains easy for consumers.
Promotional sponsors will pay for the rebate rewards, but because not every consumer who took the desired action (e.g. makes an eligible purchase) will submit for the rebate, the promotional marketing funds outlay is reduced. Retailers and manufacturers will run rebate programs for different reasons, but the rewards provided to consumers often have additional benefits.
In the next post in our series on rebates versus instant discounts, we’ll discuss the choices manufactures need to make when determining which tactic to employ. In the final post, we discuss how retailers should look at the business case for rebates.
Todd Carter is the Chief Digital Officer at YA. YA works with companies to build purchase incentive programs that deliver ROI.