Rebates, Coupons and Discounts

Traditional promotions are still hard at work . . .
but are they still working?

Rebates, coupons and price discounts have come a long way since 1894 when Asa Candler, the druggist who bought the formula for Coca-Cola, gave out handwritten tickets for a free glass of his new fountain drink. Last year savvy U.S. shoppers – 83 percent of the population – redeemed nearly 5 billion coupons for a combined savings of $3 billion. Rebates, too, are used to market all types of products these days – from food to computers.

Rebates: A boon for business?

Rebates are especially popular with consumers shopping for high-ticket items like home appliances. Two types of rebates prevail: mail-in and instant. NPD Houseworld consumer information shows nine percent of total major appliance units purchased in 2004 included a mail-in rebate, as compared to just over one percent of total small appliance purchases made during the same time period. Three percent of major appliances purchased in 2004 included an instant rebate, versus two percent for small appliances.

“Considering major appliances cost more than small appliances, there’s no surprise that rebates are being applied more frequently to bigger-ticket purchases,” said NPD Houseworld Vice President and General Manager, Peter Greene. “From cash reimbursements to bonus products and services, rebates that offer the most bang for the buck are the ones that consumers find most appealing.”

Nowhere do consumers encounter rebate offers more than in the technology products arena. NPD Techworld Director of Industry Analysis, Stephen Baker, noted “within the technology sector, rebates have actually become an overused tool to adjust pricing at retail without resorting to an actual retail price reduction.”

More than 25 percent of all computer hardware product purchases in 2004 included a rebate. Inevitably, the call to action that a rebate was meant to spur dissipates in the face of constant price promotion. In many categories rebates are used instead of price reductions or price promotion, alternating between key products and vendors on a weekly basis. Whole categories of product have become dependent on rebates to generate sales, in some cases appropriately, in others not.

Alternatives to rebates and coupons – still delivering value

In certain industries, the traditional definition of “rebates” and “coupons” has shifted into other promotional forms, including “gifts with purchase” at point of sale. According to NPD's FragranceTrack studies, women are more likely than men to be driven to buy a fragrance when a free gift is offered along with it.

“Within this category, innovative give-aways are often included within fragrance gift sets. Along with the traditional ancillary products, other popular favorites include branded bags, wristlets and keepsake photo containers,” said NPD Beauty President Timra Carlson. “These types of give-away items keep particular fragrance brands at the top of the consumer’s mind, helping to build not only brand awareness, but also brand loyalty.”

Although beauty segments are not discounted within prestige department stores, "gift-with- purchase” items and other tokens of appreciation by manufacturers are often given away by brands at the point of purchase. Specific fragrance brands traditionally register spikes in sales during larger "give-away" times, as the consumer continues to search for the little extras and value-adds.

In the automotive aftermarket industry, the use of rebates and coupons is also not immediately apparent. In fact, fewer than four percent of gasoline purchasers in 2004 reported a coupon or promotion as the reason for choosing the brand/outlet of gasoline on their most recent purchase. In the grocery store channel, however, nearly 22 percent of consumers buying gasoline at grocery store locations reported promotions or coupons were indeed a primary reason for choosing to buy gasoline at this type of establishment. In fact, many grocery chains reward consumers who use so-called “loyalty cards” that provide discounts at the pump.

“With rising gasoline prices on everybody’s minds these days, consumers are eager to get a discount at the pump,” said NPD Automotive Industry Expert, David Portalatin. “Unfortunately, traditional coupons tend not to be the best way of getting big savings on gasoline purchases – at most establishments, that is.”

In the restaurant business, coupons and discounts are key to marketers' efforts to find creative ways to entice consumers without having to steeply lower menu pricing. “For restaurant promotions to work, consumers need to perceive that they are actually getting a better food value, and not just slightly lower pricing,” said NPD Foodworld Director, Client Development, Bonnie Riggs.

In the 1970s, restaurants started using these types of promotional deals to get customers in the doors. Today approximately one-quarter of all restaurant meal sales are based on consumers’ perceptions that they are getting a good deal. Today, it's not just about clipping coupons -- these days, restaurant marketers are looking for additional creative ways to reach consumers.

Rethinking rebates

Of course, the primary use of rebates is to keep sales flowing, but in industries such as video games, where sales are showing no signs of slowing down, the need to attract consumers to popular products tends not to be a major issue. This, along with value-priced games and manufacturers’ consistent habit of dropping the price point of console hardware throughout their life cycles, helps to quell the need for rebate programs.

“While finding a rebates program in local toy or video game retail outlets can be challenging, consumers never really need to leave the comfort of their homes to find values,” said Anita Frazier, NPD Funworld. “The online channel has made an art of creating rebate-like promotions that lower costs and drive sales. Whether it's a refund of shipping costs or rebates based on the number of referrals the customer provides to a particular online retailer's Web site, savings opportunities abound for those willing to search the Web for the best deals.”

Likewise, in the fast food segment of the restaurant business, marketers are looking beyond coupons and rebates. Harry Balzer explained, “One of the most important elemental shifts in food service marketing occurred in 1991, when ‘Value Meals’ were first introduced. Restaurants began to move away from paper coupons, in favor of offering everyday deals in the form of ‘Value Meals.’ It’s really the same idea of bolstering value – but updated for the fast-food generation.”

In technology, too, marketing tactics are evolving and rebates may be left behind. “Due in part to their complexity and cost to administer, some retailers are rethinking rebates,” Baker said. “Add to those reasons the potential ill-will among consumers, and FTC (Federal Trade Commission) intervention when a rebate is not fulfilled. As a result, some technology retailers and OEMs are reducing rebates, making them simpler or promising to give them up entirely.”

Consumers’ perceived value, and use, of discount promotions varies widely by industry, as does their definition. But whether it’s a $100 rebate on a new PC, a few cents off at the gas pump with a loyalty card or a “gift with purchase” at the perfume counter, use of traditional price-based promotions and discounts remains critical to marketing efforts across the retail spectrum.