The Law, Marketing and Behavioral Economics of Consumer Rebates

Article excerpt

Introduction

During the past two decades, consumer rebates have become a major marketing method. Although exact figures are difficult to ascertain, estimates of total rebate offer volume now range from $4 to $10 billion per year.1 According to one consulting firm, over 80% of consumers participated in rebate offers in 2004, redeeming over five billion rebates worth more than $3 billion.2 The prevalence of rebates within the consumer electronics and high-tech products markets is particularly pronounced-one recent industry study indicated that 25% of all computer hardware product purchases, and almost 50% of personal computer sales included rebate offers.3 Yet despite their popularity, few marketing practices have received as much negative press as rebates. The difficulties of meeting rebate redemption requirements have become a staple of consumer affairs and business columns,4 and frustrated consumers frequently write into newspapers to complain about rebates gone astray.5 Negative consumer sentiment regarding rebates goes beyond gripes in the press; each year thousands of consumers complain about rebates to the Federal Trade Commission, state and local consumer protection and law enforcement agencies, and organizations such as the Better Business Bureau. And these numbers are growing:6 the New York Times recently reported that annual rebate complaints to the Better Business Bureau increased nearly three-fold from 2001 to 2005-from 964 to 2715.7 Given the small stakes involved in many rebate programs and the effort required to file a formal complaint, it is reasonable to conclude that the actual number of consumers with rebate complaints is much higher than these numbers suggest.8

Despite a rising number of consumer complaints about rebates, legal scholars thus far have not paid much attention to consumer rebates,9 perhaps because rebates have escaped significant direct legal regulation. But the dramatic expansion of rebate promotion usage and resulting consumer dissatisfaction has begun to exert pressure on regulators and lawmakers to take action on rebates. This trend is evidenced by Federal Trade Commission enforcement actions against rebate providers who have failed to hold up their end of the rebate bargain,10 as well as by a recently enacted rebate law in New York, n and proposed rebate legislation in several states, including California and Texas.12 As more legislators and regulators begin to focus on rebates, they will undoubtedly ask how the "problem" of rebates should be solved. In response, policy-makers will likely get ample input from consumer rights advocates, who will be inclined to suggest additional rebate regulation, and from business advocates who will recommend a laissez-faire approach to rebates. This Article will focus on a threshold question in this emerging "rebate debate" that should not be neglected: What exactly is the problem with consumer rebates? As this Article aims to demonstrate, several distinct categories of rebate complaints exist, and how the problem of rebates is understood should inform potential legislative or regulatory responses. In short, clear problem identification should precede any rebate regulation.

The Article proceeds as follows. Part I covers the fundamentals of consumer rebates. It surveys the consumer rebate process and introduces the reader to the relevant marketing terminology for the various forms of rebate redemption and nonredemption. Part I then explores the reasons why manufacturers and retailers offer rebates, with particular emphasis on the concept of economic price discriminationthe sale of goods at different prices to different consumers.

Part II covers the major categories of consumer complaints regarding rebates. First, that many rebate offerers and rebate-fulfillment centers intentionally or negligently fail to honor qualified rebate requests. second, that rebate offerers complicate the rebate redemption process as part of an insidious effort to reduce the number of successful rebate submissions. …