Sunday, March 26, 2006

Why are there so many REBATES!

People hate rebates and there are two big reasons they exist. The first is kind of obvious. Seduce customers with a low "after rebate price" and hope they never send in the rebate slip or mess up the form somehow (some companies even lie and say you need to send the form again, which is impossible without the original receipt). But that's only the obvious reason rebates continue to be a retail plague. The other reason is even more disingenuous.
Accounting and looking good to the stock analysts. That's a big factor. You would think that a rebate is a wash. You get higher sales, but you have to subtract the cost of the rebate refunds. True, but not true. For many companies, rebates do not decrease what they report as their total sales. Instead they call rebates a marketing expense. That way, they can show a nice big sales number even if they're losing money! To the naive analyst (or cynical stock promoting analyst), the sales number will appear bigger. Naturally a company might have some large marketing expense when they're showing such growth!
The falacy is that they analyst (or public) might assume those sales are sustainable, when, in fact, they've been bought, dollar for dollar, with rebates.
Al Capone wondered why there are so many criminals when there are so many perfectly good ways to steal legally.


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