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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.
