Best Buy to Drop Rebates, Channels Funds to Loyalty Program

Best Buy will discontinue mail-in rebates after catching flak from customers and regulators.

The consumer electronics retailer will phase out rebates over the next two years and shift spending to its Reward Zone loyalty program, whose members earn discounts through purchases.

“We will reinvest those dollars to be more effective/efficient with Reward Zone and other programs that may drive loyalty over the long run,” said Executive VP-General Merchandise Manager Ron Boire in a April 1 conference call with analysts.

Between Reward Zone, rebates and free financing, “the mix must evolve over time to a mix of incentives that work for our best, most loyal customers, not what works for everyone,” added CEO Brad Anderson.

“We’re looking at the rebate pool [of spending] with two concerns. One, is there a more effective way to spend it? And two, consumers tell us they hate the process,” Boire said. “They send it in and remain aggravated until they get their check. We’re looking for a better customer experience and a better investment.”

Ohio’s attorney general sued Best Buy in August, 2004 for “unfair and deceptive practices,” including a failure to honor rebates. The suit also charges that Best Buy repackaged used goods and sold them as new, failed to honor refund and exchange programs and failed to honor extended-service contracts. The suit is still in litigation and the attorney general is still taking complaints from consumers. The state seeks $25,000 for each violation of Ohio’s consumer protection laws.

Best Buy cited its six-month cut-off date as a basis for denying consumer rebates regardless of whether the consumer was aware of the cut off or had submitted an earlier request for a rebate.

The two-year time frame to phase out rebates gives manufacturers time to adjust their marketing strategies. Some product categories, such as software, lean heavily on mail-in rebates.

Last month, the Federal Trade Commission reached a settlement with CompUSA, Inc., requiring the computer superstore to pay for thousands of consumer rebates that computer peripherals manufacturer QPS, Inc. failed to make good on. It also required CompUSA Inc. to overhaul its rebate program, prohibiting the company from advertising rebates unless it can prove, through a prior or existing relationship, that the manufacturer pays rebates in a timely manner. If no record exists, CompUSA must conduct a financial analysis that the manufacturer can pay the offered rebate, the FTC said.