Manufacturer Rebates....

With so may manufacturers offering rebates for their products, I sometimes wonder about the logic behind these rebates. The reasons, manufacturers offer rebates in my opinion are

1. Cheap Credit -

Essentially, Rebates are a form to borrow from the Customer rather than the Financial Markets. A lot of times it is cheaper to borrow from the customer than the Financial markets. Consider the example below

When a Manufacturer offers say $100 mail in rebate over a $800 laptop, you still pay $800 and the associated tax to the seller. These mail in rebate checks can take up to three months for processing. The Seller in this case is borrowing $100 per laptop sold at nearly zero percent interest rate for 90 days. Nearly zero percent, because Rebates have their own management costs associated with them.

2. Tax Avoidance

I am not sure about this, but Manufacturers are not supposed to pay tax over the interest accrued over the Money that they need to send back by rebates. So, if it takes 90 days to process a rebate, Manufacturer can earn tax free interest on the rebate amount.

3. Attract more customers and get rid of Inventory

By offering rebates over products, Manufacturers are able to attract more customers couple with the fact that this gives them access to cheap credit as explained in the point above.

4. Not everyone redeems their Rebates

I was not able to get some statistics on what percentage of rebates are never redeemed. Some people forget to turn in their rebates, some rebates will get lost in the mail, all this is free money for the Seller.

Layoffs vs Pay Cuts

What things would you take into consideration, if you need to decide between having a pay cut across the board or laying off people. I came across this article which gives good explanation about both options and how his company was able to achieve its goals with pay cuts.

http://leaderchat.org/2009/01/30/layoffs-or-pay-cuts-how-would-you-decide/

In the above article, the author mentions that everyone took a pay cut except for people who made less than $50,000 and they were able to bounce back. But if you are asked to take a pay cut as an employee and if you have better paying jobs outside, are you going to take pay cut or move on. Whether you choose pay cuts or lay offs depend on how you are doing in the organization, suggests Manish Sabharwal,chairman of Bangalore-based staffing solutions firm TeamLease. If you are competent, you prefer lay offs, if you are not, you prefer pay cuts.He also cautions that it is dangerous to think that everyone thinks the same way.But, If this is true and the best decide to move on, its going to be a big loss to the organization.

You might argue that in this kind of economy, those better opportunities are not going to exist and pay cuts may be the way to go. But, what happens when the economy starts to bounce back, your best performers would the first ones to go.

Finally, I agree with the conclusion presented by the linked article above:

In the end it seems like the deciding factor may be the type of culture present in your organization. Some organizational cultures are more of the “we’re in this together” while others have developed more of a “Sorry, but business is business” type of attitude.

P.S: There is a poll in this blog about your preferences about layoffs or pay cuts. Do Vote.