The term ‘rebates’ feels archaic – most people associate it with mail-in rebates advertised aggressively in infomercials or dealership ads. But rebates are still an extremely common consumer promotion. This becomes more obvious when you think of terms like ‘cash back’ and ‘loyalty rewards’.
They’re out there. And they can be effective. But as it stands, 82% of rebates aren’t optimized to drive sales. We partnered with The Decision Lab, an applied research and innovation firm specializing in human behavior, and found sales and marketing teams could be stretching their promotions budgets way further.
We analyzed more than 430 product-related promotional offers and 6,500 data points to identify what makes one rebate better than another. And we learned how to build a rebate that drives 50% more sales without increasing your budget.
Why rebates maximize profit margins
Why go with a rebate over a discount? It comes down to slippage.
Let’s consider mail-in rebates – they’re no longer popular, but they present a strong case study for how rebates can work.
Mail-in rebates are effective as a marketing tool because they essentially bank on the fact that not everyone who purchases a product will go on to redeem the rebate. People feel optimistic when they see a rebate. They assume they’ll go through the trouble of driving to the post office, buying stamps, and sending it in to get a little cash back.
But the reality is, people trend toward the path of least resistance. And standing in line at the post office is a pain.
Fast-forward to the digital age. Now, redeeming rebates is a lot easier. Sometimes it involves entering in an email or a digital code, other times taking a picture of a receipt and emailing it to the provider. Common sense would have most people believe rebate redemption rates are considerably higher now. But we found, in our research, that they’re not.
Mail-in rebate redemption rates were somewhere in the neighborhood of 30%. Now, they’re at 38% for rebates worth $20 or less.
So, there’s still a sizable delta between those who assume they’re going to redeem a rebate, and those who actually do. Even if they all they need to do is provide an email address and redeem a digital reward.
That means, for smaller rebates, companies can expect to sell 62% of their inventory at full price. That’s way better for profit margins than a discount, where companies would have to sell all of that product for less than the retail price.
How to get the most value out of your rebate
Rebates can be an extremely effective sales promotion if they’re set up and marketed correctly. We discovered three tactics companies can employ to increase sales 50%.
1. Offer the rebate as a cash transfer, a prepaid Visa card, or a gift card of the recipients’ choice.
Our most impactful finding: there’s a difference between the actual value of a promotion and the perceived value of a promotion.
For example, if you’re offering a $20 Amazon card after rebate, consumers may perceive the value of that particular offer as being worth only $17. As a result, they’ll be slightly less inclined to purchase.
In our research, we found that consumers prefer:
- direct cash transfers
- prepaid Visa cards, and
- a gift card of their choice
These are the most valuable forms of payment in the consumer’s eyes. If you’re offering a rebate, you’ll sell a lot more inventory if you’re giving buyers money back using any of these three payout methods.
On the other hand, if you’re offering a rebate in the form of store credit, expect to sell a lot less. Consumers view store credit as 33% less valuable than cash.
Offering to pay out the rebate as a check can go both ways. If it’s for $30, for example, consumers will view it as 13% less valuable than cash. But if the rebate is worth $300, then a check is fine. Consumers view them as about equal to a prepaid Visa card.
2. Frame the rebate as a dollar value rather than a percentage of the product price.
This is a slight change in marketing copy that can make a big difference.
We found people are more likely to buy if they see that a rebate is for “$10” rather than “10% off.”
Here, the difference in actual value and perceived value is significant. Consumers view rebates marketed as a clear dollar value as 3% more valuable than rebates marketed as a percentage off the product price.
So, if you’re offering a 10% rebate for a $1,000 product, make sure to present this rebate as “$100” off. Consumers will view this offer as $28 more valuable than a rebate marketed as “10%” off.
3. Make the rebate easy to redeem.
This may, at face value, seem counterintuitive. Challenging and annoying redemption processes should, in theory, maximize profit margins, because it’ll weed out the people that don’t want the rebate that much.
But in reality, a difficult redemption process just reduces the number of people who buy the product in the first place. Marketing a rebate as “easy to redeem”, and keeping the rebate process pretty simple, will increase the perceived value of the rebate by 1%.
And it won’t eat into profit margins. If the redemption process only requires that participants enter an email address and redeem the rebate as a digital reward, redemption rates are still about 38%. One caveat: It’s important to introduce some friction, even for rebates that are easy to redeem.
These three considerations seem slight. But, when used in combination, they stretch your promotions budget 50% further.