Why can't rebates just be given at time of sale?
Exactly. Then they could avoid this:
Diffley of Helgeson Enterprises said that such steps are necessary to protect against fraud. The procedure takes several weeks because the form has to be processed by his company, then sent to the manufacturer that funds the payment.
Because rebates do not exist for the benefit of the consumer. They exist for the benefit of the retailer and/or manufacturer. It allows them to move much more product under the guise of a lower price, knowing that the majority of consumers will never cash in on them.
Let's say it is the Christmas season and I am a manuafacturer of some electronics good. I ship 100,000 units to retailers for the Christmas season with a sticker price of $100. That's $10 million dollars in potential sales.
However, my competitors are selling the same type of product for between $60 and $75.
And let's say that my "break-even" price is $65 per unit, or another way of saying it is that I need to generate $6.5 million in sales to break even and anything above that is profit.
So what I do is offer a $50 rebate to the consumer, making my "sticker price" appear to be $50, which undercuts the competition. Now the consumer still has to pay the $100 sticker price and so my product sells out and I get my $10 million in revenue for a total profit of $3.5 million.
And using the laws of averages, about 20% of consumers send in for their rebate. Well I still get to hang on to the initial revenue for several months before having to pay out the rebates and it only amounts to about $1 million (20,000 units @ $50). That leaves me with a profit of $2.5 million (not including interest I made on that $1 million the first few months).
Now had I offered instant rebate at the register, I only would have seen $5,000,000 in revenue and since my break-even point was $6,500,000, I would have LOST $1.5 million.