Let's Make A (Tough) Deal

If you're in the market for a cordless phone, it's hard to beat Northwestern Bell's 900MHz model--especially during a recent promotion at OfficeMax. Earlier this month the $29.99 phone was being sold with a $19.99 instant rebate and a $10 mail-in rebate, resulting in a net price of zero. On its Web site last week, OfficeMax touted Hi-Val modems and 50-packs of CD-ROM jewel cases, both "Free after Rebates!" At Best Buy, past the Hewlett-Packard and Compaq laptops (each featuring $200 mail-in rebates), TDK 50-pack CD-R discs are selling for $2.99 (after $17 in rebates).

All this free and nearly free stuff is a silver lining to the cloudy economy. Rebates have been an effective sales tactic for decades, but executives at "fulfillment houses"--the firms that process rebate checks--say the practice is booming. Manufacturers and retailers love rebates because they drive store traffic--and because many customers don't bother to send away for the rebates, lowering the cost of the promotion. But some shoppers who count on the check in the mail are starting to loathe this trend. They're getting fed up with the rebate rigmarole of filling out forms, cutting out UPC bar codes and waiting endlessly for rebate checks to arrive. Worse, some people say they're being unfairly denied their rebates. "If you miss one little detail, you're going to have a problem," says Holly Cherico of the Council of Better Business Bureaus.

Industry veterans admit that manufacturers are getting stricter, rejecting consumers who don't follow every letter of rebate rules. That's partly because in a tough economy, every rebate rejection goes right to the bottom line. It's also because rebates are getting more valuable ($200 on a laptop instead of $2 on Brillo pads), so companies are trying harder to root out fraud. "They are being sticklers," says Frank Giordano, president of TCA Fulfillment Services. Still, the rebate processors say they've become more consumer-friendly. Stores like Staples now print out rebate forms and multiple receipts at cash registers. Fulfillment houses let consumers track their rebates on the Web. Says Al Goldberg of the Express Group: "If the consumer follows the rules, 99 percent of the time things go smoothly."

The other 1 percent of consumers are forced to show stick-to-itiveness to get the money they deserve. After Marcos Achamizo didn't receive his $50 rebate on a Hewlett-Packard computer last fall, he made phone calls, sent letters and called the Better Business Bureau, eventually getting HP to pay him the $50 plus the $17 in certified-mail fees he'd spent chasing it.

For some companies, rebate complaints can lead to legal headaches. When Sean and Esther Verma went computer shopping in November, a $100 rebate offer from Dell helped convince them to spend $1,100 on a desktop PC. When the computer arrived, Esther says, she promptly filled out and mailed in the rebate forms. Seven months later, after numerous phone calls, faxes and e-mails, she's given up hope. "Companies should be held responsible for their end of the deal," Esther says. So last month the Vermas became lead plaintiffs in a class-action lawsuit charging Dell with a "systematic and wholesale failure to honor its contractual obligations to pay rebates." Attorney Natalie Finkelman Bennett has already received e-mail from 220 potential plaintiffs in the Dell suit.

Dell spokeswoman Jennifer Jones Davis declined to comment on the lawsuit. However, she cited "millions of customers who've been satisfied with the rebate program" and pointed to a Web site that ranks Dell's rebate --program among the country's best-run. "From time to time, mistakes are made," she says. But, she adds, persistent customers who can't get their money from Dell's fulfillment house are often given a credit when they call Dell's customer-service reps directly.

Despite the hassle factor, rebates succeed because they affect consumers' psyches in ways Freud never imagined. Consider two identical products, one priced at $30, the other at $50 with a $20 rebate. After the rebate, they cost the same, of course. However, many consumers seem to think the $50 item is higher quality, so the rebated item will usually sell better. After the sale, consumers exhibit the other rebate paradox: even though rebates get people to the register, many customers make no attempt to collect the cash. John Gourville, who studies consumer decision-making at Harvard Business School, looks beyond obvious causes like absent-mindedness or lost paperwork. Imagine yourself in a store, he says, looking at a $5 item offering a $2.50 mail-in rebate. "Wow, 50 percent off!" you say, heading for the cash register. When you get home, you make a different calculation: is it really worth filling out paperwork, finding a stamp and waiting six weeks for a check to arrive, all for $2.50? "What seems like a good deal in the store seems like less of a good deal when you get home," Gourville says. Indeed, pros say, it's not unusual for half of buyers to make no effort to collect even a $100 rebate.

As rebates multiply, the practice could have implications that go beyond customer satisfaction. Tax attorney Sandy Botkin says many of his small-business clients are confused by how to treat rebates when they file taxes. If a real-estate agent buys a $150 printer for her office but gets a $50 rebate, can she deduct the whole $150 on her Schedule C? Or should she declare the rebate as taxable income? The rule, accountants say, is that a taxpayer usually should deduct the after-rebate "net cost" of $100. But "a lot of people are writing off the whole thing and ignoring the rebate... not because they're trying to cheat the government, but because they don't know," Botkin says. He thinks rebate forms should explain that only the net purchase price of business expenses is deductible.

For consumers, the best advice on navigating the rebate maze is diligence. Carefully consider whether you're really going to follow through on a rebate before you are enticed to buy. And if you do buy, fill out the rebate forms promptly and carefully, keep photocopies of everything, and mark your calendar with the date you should receive the check. If problems arise, try the retailer or manufacturer directly or call the Better Business Bureau. And if tracking down a rebate turns into a goose chase, look on the bright side: if you bought that "free after rebate" cordless phone, at least you'll be able to roam your home as you spend hours on hold.