Tuesday, October 25, 2005

Fed Up with Rebates

Allow me to vent a little today. An abhorrent commercial practice has proliferated to the point of raising my blood pressure: the cash rebate. Instead of charging a fixed price for a good, firms are now advertising the price after a rebate as a way to tease the buyer into purchasing. Psychologically, it seems easier to purchase the good if you think the price is $20 lower. However, you know in your heart that you will probably earn the $20 through hassle.

Rebates are essentially a form of price discrimination. We have moral qualms with discrimination, a term used pejoratively to identify invidious behavior. I think discrimination is positively peachy in the right context, however. For example, I'm a discriminating buyer. I like high quality and good values, and shun the opposite. My students know that this applies to their work, and they can expect me to discriminate in favor of high quality work. On the other hand, when others discriminate against me because I am male, or an Iowan, or a farmer, or a Bluejays fan, then I don't like that so much. We use a lot of mental energy trying to ascertain which kinds of discrimination are tolerable and which are not.

Price discrimination is one such problematic area. When it comes to prices, some people have no problem in giving discounts, which are common these days. The student discount, senior citizen discount, or AAA member discount are all examples of price discrimination in favor of one group. On the other hand, if we charged a premium to non-members of these groups, then that would rile most people considerably. I'm puzzled over this reaction, but I think it is common. We like to be generous toward particular groups, but charging more seems like a form of punishment. Again, it's not entirely rational, but it is part of human behavior.

When it comes to the rebate game, firms are giving the price-sensitive folks a way to purchase their goods at lower prices, while at the same time capturing the profits from those willing to pay more because they are unwilling to endure the hassle. I personally have no problem with the concept, but it still frosts me that they make the process so cumbersome.

Take the new Quicken software I purchased last week. They had a form in the box that allowed me to go online if I wanted in order to sign up for my $20 rebate. I thought this would be fast and efficient. But No - after I did the whole online thing, I was asked to print out the form and mail it. This was an insult. It was purely a way to add friction to the process (and to save the labor cost of their people inputting my paper forms). But I was not about to cave -- this became a personal quest. I made the copies and mailed the form like they told me. I was going to get my $20 no matter what, and their hidden terms would not keep me from my bounty.

When I have options, I go toward firms that don't use these tactics. (Sadly, Quicken locked me in with a product I grew familar in using, and I was willing to endure their bad behavior because I had no real alternative. Lesson here: don't be a commodity producer where choices are plentiful.) I used to shop in CompUSA, but not any more. They practically don't have a product that doesn't involve a rebate. That is the great thing about this country: we have choices to avoid practices that we find cumbersome. However, the profit motive makes the rebate hard to give up, as many people just won't endure the hassle, but will still be tricked by the attraction of a lower net price. Why? I don't know. Why does Charlie Brown keep kicking the football. It just happens.

Another problem with the rebate: we pay sales tax on the full price. Rebates thus fill the coffers of state and local tax authorities with much more than we would have if we did not have price discrimination. In high tax jurisdictions, that adds a significant transaction cost to the good which benefits neither the buyer nor the seller in any direct sense. (In my view, if you want to make a contribution to the government, that's fine. But this is a forced exaction by any definition).

OK, that's my venting for today. Go forth and buy -- at a firm that doesn't engage in this form of price discrimination -- or not. It's your call.


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