Are Mail-In Rebates Headed for Extinction?

Though some sellers are abandoning rebates, these offers still have appeal.

Yardena Arar is a senior editor, for PC World. Send e-mail to consumerwatch@pcworld.com.

Yardena Arar

Don't you just hate mail-in rebates? It really galls me when a tech product's advertised price turns out to be based on a refund that I won't receive until several weeks after my purchase--and only if I mail in a properly completed form, a UPC code that I have to hack off of the product packaging, and my receipt. (In some states, advertising a post-rebate price is actually against the law.)

For those of you who despise rebates as much as I do, there's good news: Best Buy and OfficeMax have been on a crusade to eliminate mail-in rebates (and these huge chains have the clout to make most vendors heed their wishes).

If you use tax-preparation software, you may have noticed that last year Intuit got rid of the complicated rebate price structure for its popular TurboTax software line; and this year H&R Block followed suit by eliminating mail-in rebates for TurboTax's principal competitor, TaxCut.

But don't break out the champagne and party hats just yet. Retailers such as Circuit City and Office Depot continue to use rebates as marketing tools; and in the highly competitive cell phone industry, rebates on handset purchases seem to be more popular than ever. The decline of rebates may save everyone a lot of hassle, but it may also mean that we'll be paying higher prices.

Deal or No Deal

Stephen Baker, vice president of industry analysis for market research firm NPD Group, even expresses skepticism about whether rebates are as unpopular with shoppers as I believe they are.

"I don't think it's clear at all that customers hate rebates. There's a dedicated group of customers who fill out their rebate forms and send them in," Baker says. "While we hear about the few people who don't get their rebates, the vast majority of people who fill out forms get their rebates back."

It's tempting to think that a $40 product carrying a $10 rebate should cost $30 if no rebate is offered. But the math doesn't really work out, since only a fraction of buyers go to the trouble of applying for a rebate. Nevertheless, the price ought to drop if the rebate disappears, right?

Not necessarily, says Baker. The money that a company previously earmarked for a rebate program may get redirected into additional advertising, say, or bonuses for sales representatives. In other words, "product prices don't go down as quickly as they otherwise might," Baker observes.

Case in point: When Intuit eliminated rebates for TurboTax, the company didn't lower the software's price. The Deluxe edition, for example, currently costs $40. I looked back at PC World's tax software reviews from two years ago, when Intuit still played the rebate game. They showed that the Deluxe version cost as little as $25 after mail-in rebates.

TurboTax's FAQ acknowledges that with the elimination of mail-in rebates "some people will pay more." But the same FAQ says that the change was made for the benefit of customers, who "overwhelmingly told us they did not like rebates." (The FAQ doesn't say whether these customers hated rebates so much that they welcomed higher net prices.)

Rebate-Free Stores

Best Buy, similarly, is hoping to increase its market share by touting its two-year campaign to eliminate mail-in rebates as a response to customer gripes. The company says it expects to be rebate-free by the cover date of this issue--April 2007. Unlike Intuit, however, Best Buy acknowledges that its customers also like to save money. So in lieu of mail-in rebates, Best Buy promises "instant savings" on selected products, reductions that are credited at the cash register.

Deciding whether to buy a product that comes with a mail-in rebate offer can involve a tricky calculus. If the rebate promises a significant reduction compared with prices everywhere else, pursuing it makes obvious sense. But if you're saving only $10 on a $200 item, is it really worth your time? And what do you do if one store charges more for a product, but promises a substantial mail-in rebate? You have to decide whether it's worth the risk that you will never see that rebate, either because the company doesn't follow through or because you simply forget to fill out the paperwork and send it in.

Nowhere are rebates more abundant lately than in the fiercely competitive cell phone business. Carriers view them as come-ons for customers and hope to recoup what they give up in revenue on handsets through their profit on your monthly service bill--hence the inevitable service-contract requirement (typically two years, sometimes one). Before you leap at such a deal, be sure to examine the fine print: Cingular, for example, demands that you commit to a $40-a-month all-you-can-eat data plan as well as a $40-a-month voice plan in order to get rebates that lower the price of the Treo 680 from $450 to $200 (see my review of the Treo 680).

Often you'll see multiple rebate offers for a handset--such as an "instant" rebate that basically drops the price you pay online, followed by a mail-in rebate that requires service activation and the usual rigmarole of forms and proof of purchase. Why the different systems? "Sometimes the rebate is from [the handset maker], and sometimes it's from us," says Cingular spokesperson Ritch Blasi.

Carrier rebate offers can vary by location as well, because like most national companies, carriers have different sales territories whose executives are responsible only for their own results. "Rebates give them flexibility," Blasi explains. This is why you can't get a price quote for service or handsets on a carrier's Web site without first entering your zip code.

Here's one way to make regional differences work for you: If you happen to be traveling when you're in the market for a new phone or wireless contract, consider checking the prices at a retail outlet in the area that you are visiting. My cousin back east is always astounding me with the bargains that he finds at local retailers.

While cell phones are rife with rebates, other product categories seem relatively bereft. Analyst Baker cites the TV industry as an example: Flat-screen TVs are hot products, and prices are tumbling, yet you rarely see a mail-in rebate offer for an LCD or plasma set. When vendors want to move more units, they offer sales.

Attention Smart Shoppers

Baker says there is some evidence that rebates are losing favor. But where they persist, a smart shopper would be foolish to ignore them. Rebates also hint at what's going on in the market for a product category, which can be helpful when you're shopping. If you see huge instant rebates on a particular phone, for example, "that's probably an indication that the real value of the product has gone down," Baker says. (I notice that as of this January writing, Cingular is offering a $150 "online discount" on the Treo 650, which is another way of saying that the product is nearing the end of its life.)

Mail-in rebates, in contrast, are more akin to sales and can come and go, depending on how well the product is moving. If you see one for an item you like, you can't assume that the rebate will be there in a month, so take note of the offer expiration dates (which usually appear somewhere on the rebate form).

Don't get me wrong--I still hate rebates. But not as much as I hate paying more for a product than I have to.