Retail Instant Discount vs Rebates

Should retailers implement instant discounts or create a rebate program?

February 3 2020

Many retailers shifted away from rebate programs because of the perception that rebate processes make for poor customer experiences. This led retailers to move toward instant discounts and straight markdowns during the check out process.

In our previous posts in this series, we provided a high level overview instant discounts and rebates in part one and the choices manufacturers make.

Instant discounts are used as a marketing tactic to increase store traffic and drive consumers to purchase products over and above the promoted product. But, in the process, retailers will typically take a direct hit to margin on the promoted products. Even if they look to make up for the impact through sales lift on SKUs like accessories, which typically have higher margins, the sales increase is ultimately higher with rebate programs.

Rebates have undergone significant improvements that have alleviated many of the customer experience concerns that led retailers to move away from rebate programs. By directly addressing consumer concerns around the speed and redemption experience, this now provides retailers with a marketing tactic that has a far better ROI.

Additionally, with advancements in retailer gift cards and point of sale processing, using a retailer’s own gift card as a reward drives a return visit that often results in overspend producing additional ROI.

A consumer-friendly rebate experience creates an interesting comparison when analyzing how much lift is required for an instant discount versus a rebate program.

Below is an illustration of this business case:

Retail Rebates Vs Instant Discount Business Case

Additionally for an instant discount to meet the same net profit of a rebate with a prepaid card, it needs over 200% sales lift.

Retailer rebate vs instant discount sales lift

Nicole Shannon is a Senior Director of Client Services at YA. She works with clients every day to design scaled rebate programs for major retailers.

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