Rebates Law and Legal Definition

A rebate is a discount or reduction on a sale price. It is often used as a marketing strategy to promote sales. When secretly accepted by a subcontractor from a contractor in return for obtaining a job, it may be illegal. Rebate offers which are offered in connection with an installment contract are subject to regulation under the Federal Truth-in-Lending Act, which requires a series of loan disclosures. These disclosures include the total cost with all finance charges, and the APR, or annual percentage rate.

The following is an example of a state statute dealing with rebates:

"Any officer, agent, or servant of any railroad, manufacturing, or mining corporation who is authorized or employed to buy any property or who may be empowered to contract for, let out, locate, superintend, or estimate for any work or construction for such corporation and who demands, asks for, bargains for, agrees to take, takes, or receives, directly or indirectly, from the seller of such property or the contractor or other person any rebate, discount, drawback, return commission, gift, or gratuity, must be punished on conviction as if he had stolen it."

Additional Definitions

Rebates

Rebates, widely known as refunds, are a popular tool used by businesses to promote their products and services. Rebates are distinct from coupons and other forms of discounting in that they reimburse a customer for part of the purchase price following, rather than at the time of, the sale. By offering consumers cash back on the purchase price, rebates provide an incentive to buy a particular product.

A relatively new method of promotion, rebating evolved from the marketing technique of offering coupons. They were initially offered by producers of grocery-store goods and subsequently by manufacturers of nonfood items. Currently, businesses making use of rebates are diverse and include the manufacturers of health and beauty aids, household supplies, and small and large appliances, as well as automakers, wine and liquor manufacturers, and segments of the computer industry.

The cash amounts these companies offer their customers is similarly wide-ranging; some rebates of less than a dollar are offered, while other rebates on "big ticket" items such as automobiles have reached several thousand dollars. The size of the rebate offered depends on the base retail price, the nature of the product being promoted, and the number of goods backed up in the production pipeline.

HOW REBATES WORK

A rebate is created when a manufacturer offers a rebate to all who purchase its product. Typically the offer carries an expiration date of six to eight months. The purchaser completes a form provided by the manufacturer and mails it—along with any other items the manufacturer may require, such as a cash-register receipt or the Universal Product Code (UPC) snipped from the packaging—to the address specified on the form.

Most commonly, the purchaser sends the rebate form and related "proof of purchase" items not to the manufacturer but to one of several large clearinghouses hired by the manufacturer to handle these transactions—for instance, the Young America Corporation in Minnesota or the Nielson Clearing House in Texas. The clearinghouse then processes the form and sends the purchaser a check in the manufacturer's name, usually within four to eight weeks from the time the purchaser mails in the required information.

Companies use a number of means to get their rebate forms into the hands of customers. Many companies supply a pad of tear-off rebate forms to the stores selling their products; others print the form directly on the packaging or on a tag hanging from the merchandise. To announce the rebate offer and distribute the forms, companies may also place advertisements in newspapers and magazines, utilize home mailers, and/or place ads in the myriad refunders' newsletters developed by consumers to avail themselves of these offers. In addition, companies frequently use television and radio advertisements to publicize their rebate promotions. Finally, there are several Internet sites that direct consumers to rebate offers, such as myRebates.com and CyberRebate.com.

PROS AND CONS

Rebates are highly attractive to most consumers. They provide a partial and tax-free cash reimbursement for their purchases; the Internal Revenue Service views rebates as a reduction in the price paid for a product, rather than as income. And for manufacturers, rebating provides numerous advantages: it induces prospective customers to try their products; it boosts company sales and visibility; it relieves problems of excess inventory; and it attracts interest from retailers, who often help promote the offer and expand the shelf space allotted to the manufacturer's goods accordingly. Rebate promotions can thus help a company increase its leverage with retailers and develop brand loyalty and repeat business among consumers over the long run. Indeed, a study conducted by United Marketing Services (UMS) found that rebates are an effective means of establishing product awareness with consumers. In addition, the information consumers provide on rebate forms can be used to target future promotions.

As rebates have increased in popularity, however, several common problems have emerged. For example, many companies have experienced problems honoring their rebate offers, largely due to an inability to keep up with demand. In fact, some companies offer rebates with the knowledge that only a small percentage of consumers bother to take advantage of them. Collecting on a rebate takes some trouble and concentration; consumers are forgetful, mislay the rebate coupon or the proof of purchase, and thus pay a bonus for the product. Companies relying on such probabilities sometimes fail to anticipate the level of interest the product or the rebate may generate; they plan rebate processing poorly, produce long delays, lose good will—and may even run out of money.

Due to the frequent mix-ups and delays in processing rebate submissions, some consumers now tend to view rebate offers as a sleazy marketing tactic. This means that fewer consumers will base their purchase decisions on the availability of a rebate. Experts note that consumers can increase their chances of receiving rebates due by sending all the documentation requested in the rebate offer; keeping copies of all forms and receipts; checking on the status of overdue rebates with the company; and reporting any problems to the Federal Trade Commission, the Better Business Bureaus, or the state attorneys general. Finally, experts advise consumers to never buy anything just for the rebate.

SEE ALSO Coupons; Discount Sales

BIBLIOGRAPHY

Davis, Douglas D., and Edward L. Millner. "Rebates, Matches, and Consumer Behavior." Southern Economic Journal. October 2005.

Kandra, Anne. "Rebate, Rebate, Who's Got the Rebate?" PC World. July 2000.

Royal, Leslie E. "Reap the Rebates." Black Enterprise. July 2000.

Steve, Smith. How to Sell More Stuff: Promotional marketing that really works. Dearborn Trade Publishing, 2005.

                               Hillstrom, Northern Lights

                                  updated by Magee, ECDI