To drive sales, many manufacturers have included rebates in their marketing toolkit for years. However recently, retailers have pushed their suppliers to move to instant discounts taken at the point of sale. While this trend has led to an easier consumer experience for retailers, it has had a major impact on the return on investment that manufacturers can expect from their promotions.
As a marketing strategy for manufacturers, instant discounts can drive sales during key periods, but can negatively impact their brand position by reducing their prices below MRSP. More importantly, when discounting the price of a product, the discount directly impacts the margin rates for every unit sold at retail.
In contrast, creatively using and positioning rebates as a purchase incentive for their retail partners can drive an improved ROI for the promotional spend for two reasons:
- Not every consumer that takes the desired action will redeem their rebate. Industry studies show that between 5% and 80% of consumers never submit for their rebates. (Consumer Affairs)
- Using an open loop prepaid rebate card as the reward allows manufactures to typically purchase cards below the face value of the rebate amount.
While it is unclear whether a rebate or an instant discount will drive more sales, the reduced costs of a purchase incentive allows manufactures to provide a larger amount off the MSRP or increase other marketing tactics with the same promotional budget.
Below is an illustration of this business case:
Additionally, for an instant discount to meet the same net profit of a rebate with a prepaid card, it needs over 5 times the sales lift.
In the next post in our series on rebates versus instant discounts, we’ll discuss why retailer may want to consider rebates over instant discounts.
Kevin Palmstein is a Vice President of Product, Alliances and Marketing at YA. He works with clients every day to design scaled purchase incentive programs.