Priceless by William Poundstone

Author:William Poundstone
Language: eng
Format: epub
ISBN: 9780809094691
Publisher: Farrar, Straus and Giroux

Thirty-one

Breakage and Slippage

Rebates make no sense. Instead of buying something and getting a rebate, why not just pay a lower price in the first place? Practical-minded consumers have been asking this question for years. Businesses and most everyone else have paid little attention. Rebates are more pervasive than ever. About a third of all computer gear comes with rebates, and over 20 percent of LCD TVs and digital cameras do. Fly your favorite airline and get frequent flyer miles for free trips and first-class upgrades. Use a credit card and get cash back, or more of those airline miles. Cars have “dealer incentives,” and some real estate developments offer free cars to buyers. You do not need the savvy of a coupon queen to cop a rebate trifecta at any checkout line: use a manufacturer’s coupon, swipe your loyalty card for another discount, and then pay with a credit card that gives back a few percent vigorish.

Rebates have been big business at least since the early twentieth century. In 1896 Thomas Sperry and Shelly Hutchinson founded a company issuing S&H Green Stamps. Sperry and Hutchinson sold the stamps to markets and gas stations, who gave them away free with purchases. Consumers were supposed to save the stamps, paste them in free “books,” and redeem the books for merchandise. This created what was euphemistically called loyalty. Customers didn’t want to switch markets because they needed more stamps to get a toaster or a bathroom scale. Green Stamps peaked in popularity in the 1960s, when Sperry and Hutchinson was printing three times as many stamps as the U.S. Postal Service, worth some $825 million. The company operated a chain of “redemption centers,” mini–department stores that didn’t accept money—only Green Stamps. The business took a downturn in the 1970s and was supplanted by the rise of modern rebate programs like frequent flyer miles and supermarket loyalty cards in the 1980s. Sperry and Hutchinson still runs a “GreenPoints” program for Internet purchases, a rather insignificant part of today’s rebate picture.

One thing Sperry and Hutchinson bequeathed to today’s rebaters is the “Green Stamps Syndrome.” It was a lot of work to paste stamps into books. Americans had drawers full of stamps and never got around to redeeming them. The unredeemed stamps were pure profit for Sperry and Hutchinson.

Two independent companies, Young America and Parago, handle much of the nation’s rebate paying. In consumer circles, their reputation is little better than the average dogfight promoter’s. “Breakage” is the industry term for rebates that never get sent in, and “slippage” refers to checks that are sent out but somehow never get cashed. Both are big drivers of profit. “The game is obviously that anything less than 100 percent redemption is free money,” the consultant Paula Rosenblum told BusinessWeek.

In theory, rebate processors do not profit from unredeemed rebates. Their clients do. But one processor, TCA Fulfillment Services, bragged about the low, low percentage of rebate checks it cut and that got cashed—as little as 10 percent for a $10 rebate.

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