Marketers and retailers could easily cut their rebate costs 20% or more, rather than abandoning rebates altogether— Best Buy vowed last year to do. But few marketers pay enough attention to their programs to find and fix the glitches. That’s where Hal Stinchfield comes in. The founder of Promotional Marketing Insights and a 30-year fulfillment veteran from Carlson Marketing Group, Young America Corp. and Archway Marketing Services, Stinchfield analyzes rebate management programs to improve communications (and, in turn, cut customer-service costs). He calls it “promotion optimization,” and he talked with PROMO P&I about it.
What’s wrong with rebates?
Often, one brand will offer a rebate and its competitors will rebate the same amount just to keep up. They never do an ROI analysis to see if they could get the same sell-through with a lower rebate. A lot of rebate programs are on autopilot; they just do what their competitors are doing.
A marketer’s objective should be to maximize sell-through and minimize expense. So the question is, is the amount correct and can we reduce their liability? We conduct promotion audits to see where money is being wasted. We study the communications, frequency of programs, duration, everything, and then benchmark against what the rest of the industry is doing. We analyze invalid rates— percentage of consumer submissions that are disqualified. We focus on the face value of a reward and its appropriateness to the marketer’s goals. It’s fairly intricate; the marketer also has to work with retailers to set rebates appropriate for them.
Rebates are so frustrating for consumers— those hoops to jump through.
When a lot of consumers submit rebate requests and they’re declined because they don’t have the correct proofs of purchase, we look at why: What was it about the communication that consumers didn’t understand? When you’ve got all these angry consumers, it’s bad for the brand, but also very expensive to handle because each complaint involves an average of four calls to customer service. If we can correct the communication, we can pull the customer-service expense way down.
And communication between parties isn’t that good anymore. In the early days, a fulfillment vendor would look at the first 10 vouchers from consumers and if they saw that consumers weren’t sending the right proofs of purchase, they would temporarily halt the program to ask the marketer, “Do you want us to disqualify half of them or pay them?” You can lose money to pay them, but you can lose a lot more if you disqualify them. You have to look at the lifetime value of the consumer.
We evaluate the “invalid reports” that fulfillment houses submit to the manufacturer and data from the fulfillment house, retailer and in-house call centers to help manage offers once they’re underway.
How much money is behind rebate programs?
Expense is growing exponentially. Back in the 1970s and 80s rebates were popular with packaged goods and only cost $1 or so. They’re popular now for retail, wireless, and technology brands, so values soared to a range of $50 to $100. So the process has higher stakes and is more complicated.
Rebates got derailed by retailers because in the early 90s manufacturers had a tough time getting tear pads up in stores at the same time their offers ran in circulars. So retailers ruled out tear pads, and printed the mail-in certificates as part of the cash-register receipt. Retailers were handing consumers a complete deal, so response soared to about five times what it had been. You get sell-through, but the expense against the sell-through is extraordinary.
How much money is lost in the management of rebate programs?
It varies widely, but pretty much any program can make 15% to 20% in savings. It’s a combination of face value and ancillary expenses such as verifying and invalidating responses, customer service, replacements and resubmits for complaints that are first denied, where you may be sending a replacement check to a complaining consumer who got the first rebate check after he first complained.
What are marketers’ biggest mistakes?
It kills me to see offers with a $25 rebate. Why couldn’t it be $22.50? Why not $20? Let’s test them. No one does, because the new categories using rebates— wireless and high-tech brands— only been doing them for a short time. The people spending the most amount of money have the least amount of experience.
Some offers run too long; they’ll go for 18 months, and the liability increases every day the program is live. If the objective is sell-through, 18 months is unnecessarily long.
The technology exists to be stealthy about duration: You can put up a program today and take it down in five days. Consider Thanksgiving weekend: Purchases would have to be made in those five days to qualify for a rebate.
You also don’t want to overlay offers, with a mail-in certificate in-pack and on the receipt and on a tearpad. An on-pack certificate can differentiate the product on-shelf. But some retailers have forced manufacturers to let the retailer give a mail-in certificate with shoppers’ cash register receipts if the manufacturer wants that product featured in the retailer’s circular. Retailers want to guarantee that consumers will find the mail-in certificate for offers in their circulars, to cut consumer complaints.
How much breakage is a good amount?
You can’t measure breakage because you can’t find the people who made the purchase because of the offer but didn’t redeem it. The measurement criteria are the amount of sell-through and cost of expenses. That direct correlation between sales and expenses is very measurable, but I’m not so sure a lot of marketers are measuring them.
Are rebates still a good incentive tool?
Yes. They work. Rebates aren’t the problem; it’s the communication and execution that’s the problem. They won’t go away, because they’re effective: You can easily see a 500% lift in sales if you’re in a retail circular with a compelling offer.
Rebates aren’t broken. Everyone who touches them needs to better manage them. It’s not that rebates are a rip-off. It’s not that manufacturers want the sales but not the expense— just aren’t doing a very good job managing.
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