Introduction
As a background for analysis, the Great Rebate Runaround case is applied. Issues related to this case touch on the nuances of using rebates as an example of customized pricing, their relation to decreasing wholesale prices, and why Best Buy is considering dropping them. Despite different positive nuances that rebates bring, some deterrents, particularly long processing time, lower incomes compared to trade discounts, and possible client complaints, allow for rejecting such a profit capitalization strategy.
Question 1
Rebates used as an algorithm similar to customized pricing, are an essential tool not only in creating customer offers but also in capital formation. According to Simchi-Levi et al. (2021), a significant share of financial assets is accumulated due to the fact that customers often do not cash out rebates, which, in turn, serves as a source of additional profit for companies. Along with an opportunity to increase revenues, companies achieve the effect of targeted offers. A large proportion of buyers look for specific products and focus on certain price ranges. At the same time, many high-income consumers do not pay attention to prices. When following this logic, one can compare rebates with customized pricing, which, as Priester et al. (2020) argue, allows for maintaining price dynamics based on buyer profiles. As a result, sales efficiency is higher compared to the strategy of decreasing wholesale prices.
Question 2
Offering rebates instead of reducing wholesale prices is due to a number of factors. Wang et al. (2018) state that increasing demand, reducing surpluses, better control of supply chains, and some other prospects favor rebates. One of the most significant perspectives is stable profit management. A buyer who expects rebates pays more initially to receive a discount later. As a result, company budgets do not suffer critically because business owners can predict earnings based on general pricing conditions rather than individual sales. Attracting new customers through rebates is a valuable prospect, and following this practice is more strategically justified than promoting the practice of decreasing wholesale prices. That is why manufacturers still want to offer rebates even in the case of their redemption.
Question 3
Best Buy’s desire to eliminate rebates can be due to several reasons. Firstly, according to Simchi-Levi et al. (2021), the procedures involved in processing such orders are time-consuming; moreover, the seller, not the suppliers, is responsible for this activity. Secondly, even counting on rebates as a way to increase income, such an algorithm of work does not allow for achieving the same level of profit as, for instance, through trade discounts. As Keller and Alsdorf (2012) argue, no salesperson can ignore customer demand as a factor that directly impacts profits because it goes against basic entrepreneurial principles. In addition, the discount process may be accompanied by complaints from customers who experience difficulties in obtaining refunds due to external factors, such as postal delays. As a result, to avoid the deterioration of its market reputation and secure a higher income, Best Buy is considering the option of eliminating rebates.
Conclusion
Rebates, described in the Great Rebate Runaround case, can be regarded as a potentially stable and effective way to accumulate profits. Compared with the strategy of reducing wholesale prices, this method of demand stimulation provides more stable planning and high customer interest. Nevertheless, given the nature of Best Buy’s business, one might note the lack of effectiveness of rebates due to several barriers, namely processing time, customer complaints, and lower profitability compared to trade discounts.
References
Keller, T. & Alsdorf, K. (2012). Every good endeavor: Connecting your work to God’s work. Penguin Random House.
Priester, A., Robbert, T., & Roth, S. (2020). A special price just for you: Effects of personalized dynamic pricing on consumer fairness perceptions. Journal of Revenue and Pricing Management, 19, 99-112. Web.
Simchi-Levi, D., Kaminsky, P., & Simchi-Levi, E. (2021). Designing and managing the supply chain: Concepts, strategies and case studies (4th ed.). McGraw-Hill Education.
Wang, Z., Mi, J., & Liu, B. (2018). Rebate decisions and leadership strategy in competing supply chain with heterogeneous consumers. Mathematical Problems in Engineering, 2018, 1-20. Web.