Consumer rebate strategies: a billion-dollar opportunity

New research says 82% of rebates are subpar. We'll show you how to build a better program.

By Ian Floyd, Kate Monica, The Decision Lab|15 min read|Updated Aug 15, 2023

A good consumer rebate marketing program is an efficient tool for driving sales. A bad customer rebate repels prospective customers and burns precious marketing dollars. What differentiates a good rebate marketing strategy from a bad program is the billion-dollar question.

The latest academic research on optimizing rebates in marketing is extremely outdated. Most of it was published over 20 years ago. It's focused on methods no one uses much anymore, like mail-in rebates. And it doesn't take digital channels or e-commerce into consideration.

The long-overdue update is here. We worked with The Decision Lab (TDL), an applied research and innovation firm specializing in human behavior, to answer some key questions about rebates ourselves.

With TDL's help, we:

• Analyzed more than 430 product-related promotional offers to understand current practices
• Ran 500 consumers through a discrete choice experiment (DCE) to identify the most impactful levers for marketers to pull when designing incentive programs

It turns out that 82% of consumer rebates aren't fully optimized to drive sales. Which is a huge loss, because the right rebate can increase sales by 50% without costing a nickel more. With billions of dollars (source: educated guess) spent annually on rebate programs in North America, that's a lot of wasted opportunity.

The insights that follow analyze experimental data to show:

• How rebates often go wrong
• What consumers find most appealing
• The benefits of an optimized consumer rebate program

The main takeaway is this: A customer's perception of a rebate's value is even more important than the actual dollar value of the rebate you're giving them. With a little bit of evidence-based incentive marketing, brands can unlock potentially massive value — at no extra cost.

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• Or, download our quick-hits summary of how to optimize your rebate program.

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• Most rebates miss the mark
• Framing your rebate, so consumers want it
• Ballparking rebate amounts and claim rates
• On incentive type: cash and store credit aren't equivalent
• The takeaway

Most rebate marketing strategies miss the mark

Most rebate programs have room for improvement. A lot of improvement.

• We analyzed over 430 rebates across a variety of sectors, ranging from $1 to over $2,000 in value.
• 82% of rebates aren't fully optimized to drive sales. Common offenses include picking the wrong incentive type and improper framing of the rebate value.

A rebate is more or less attractive to the consumer depending on how it's presented or paid out. It's less about how much you're giving someone for a rebate and more about how good of a deal they think they're getting. This is known as perceived value.

We'll walk you through optimizing for perceived value. Following our advice could net you 50% more sales without changing your promotions budget.

When we looked at underperforming rebates, we noticed a couple commonalities.

Top two mistakes to avoid:

1. Given as a mailed check or store credit. Our data shows these rewards shave $16-130 in perceived value off a $300 rebate.
2. Framed as a percentage of the product price, rather than a clear dollar value. Consumers treat these as being worth an average of $28 less than what they actually will get.

All told, these mistakes may end up eating away a quarter of a marketer's budget.

In our analysis, we discovered only 74% of dollars spent on rebates actually translate to perceived value — that means $26 of every $100 is wasted.

Framing your rebate, so consumers want it

Making sure consumers fully appreciate the funds you're giving back is all about framing a rebate the right way. That means you must feel confident in the following questions when creating your rebate pricing strategy:

• How does the type of product we offer matter when setting a rebate?
• How should we describe the rebate? Does the consumer "earn," "get," "save," or "receive" the money?
• Should the rebate be described as a percentage of the price or in dollar terms?
• Is explaining the ease of redemption meaningful?

Turns out, not all of these details matter.

Product type doesn't matter

Our experiment framed promotional offers around a variety of products differentiated along two dimensions:

• Low vs. high cost (e.g. a $100 toaster or a $1000 washing machine)
• Utilitarian vs. hedonic (e.g. a toaster or a bluetooth speaker)

Weirdly, it doesn't matter what type of product you're selling.

• Consumers perceive promotions the same, whether the product is hedonic or essential.
• So, $100 off a washing machine is just as compelling as $100 off a similarly priced TV.

"Earn" your rebate might be best

Stressing over how to frame or market your rebate? It might not matter.

We tested four ways to frame the language. For instance, a $50 rebate can be framed as:

• Get $50
• Earn $50
• Save $50
• Receive $50

"Earn" slightly outperformed the others, but not by much.

Don't sweat the verbiage within your rebate marketing strategy. Your copywriters can take a deep breath. Wording doesn't really matter. When in doubt, have consumers "earn" their rebate.

Words don't matter, but numbers do

We tested two framing devices for the dollar value of rebate pricing:

• A straightforward dollar value (e.g. $100 off)
• A percentage of the product's price (e.g. 10% off)

Consumer preference was clear. Communicating clear dollar amounts makes your rebate feel more valuable.

• A rebate presented in dollars (instead of a percentage) increases the perceived value of the rebate by 3% of the sales price — regardless of the size of the rebate.
• A 10% rebate on a $1000 product is perceived as being $28.70 less valuable than a rebate of $100.

If there's one small change you can make to optimize your promotional rebate program, this is it.

Claiming a rebate shouldn't be all that painful

Past research shows that making it difficult to claim a rebate can harm the perceived value of a rebate (Tat, Peter K., 1994)

We tested two ways to frame the process:

• We tested if adding an "easy to redeem" label made a rebate feel more valuable.
• The label increased perceived value by about 1% of the product's value (not rebate value), or about $9 for a $1000 item.
• There was no signal that the "easy to redeem" label increased the perceived value of smaller rebates.

A clear effect emerges when we focus on specific subgroups of our overall sample.

• People with jobs value these assurances to the tune of $14 more than students or unemployed adults.
• Our research doesn't answer why. But we suspect that a fast-and-easy process is more appealing to consumers who are squeezing a shopping session into an already-packed day.

Ballparking rebate amounts and claim rates

Rebate pricing strategies: How much to offer

The optimal dollar value of a consumer rebate is contextual. It depends on your:

• Target audience
• Industry
• Product price
• Objectives for the incentive program

We can't give you an accurate number for determining how much to offer within your marketing rebate pricing strategy. The right dollar value is dependent on your product, its price, the goals of your promotional offer, your ideal customer segment, and more. But we can offer a good estimate on pricing based on best practices in e-commerce.

• We reviewed 430 discounts and rebates on 21 different e-commerce websites.
• 30% of the sale price of the item is the most common.
• The majority of promotions were in the 20–40% range.

How often rebates are claimed

Marketers love rebates because not everyone will actually claim it. So, you’ll sell some portion of your product at full price.

In the days of mail-in rebates, when redemption was an arduous process, studies found:

• People way overestimated their likelihood of claiming the rebate (Soman, Dilip and Gourville, John T., 2005). That's especially true if it was a product they were excited about.
• For $10-$20 rebates, claim rates were was 10-30% (Edwards, Matthew A., 2007).

Mail-in rebates are a thing of yesteryear, and we wanted to test how often people claim digital rebates that are only a few clicks away.

In our experiment, at the "point-of-sale," participants were prompted to provide their email address in order to receive rebate claim instructions in three days.

• 85% of people gave an email address.
• 80% of the people who were offered just 50 cents provided an email address.
• The vast majority were valid: only 3 of our 245 redeemers gave a phony email.

• For a rebate of $20 or less, only 38% were claimed. (This is higher than the 30% estimated for mail-in rebates, but not by much.)
• Claim rates jumped to 60% for a $100 rebate.
• The claim rate never reached 100% — only 4 of the 5 people offered $200 successfully followed through.

Importance of the wait

Our data is consistent with past research suggesting that consumers are overly optimistic when it comes to the likelihood of following through on claiming the rebate (Soman, Dilip and Gourville, John T., 2005)

• >80% of participants provided their email at our "point-of-sale," suggesting that they expect to claim the incentive. This expectation is why rebates drive more sales.
• In reality, when rebate claim instructions were sent out after a three-day delay, only a fraction followed through. Consequently, only this subset needed to be paid out.
• This disparity between intent and follow-through tells us that marketers can benefit from this same optimism. For the first time (as far as we can tell), we have proven that the effect holds for digital rebates.
• A short wait, for either practical or strategic reasons, can preserve both the appeal of the promotion for consumers and the most attractive piece of a rebate for marketers — a less than 100% claim rate.
• Friction during the process of claiming the rebate did not have a similar effect. Asking participants to solve a math problem prior to claiming the rebate had no effect on the probability of success.

Digital rebate claim rate heuristics

All told, we saw claim rates of:

• Around 40% for rebates less than $20
• A little less than 50% for rebates of $50
• 75% for rebates of $150

On incentive type: cash vs. store credit

Even when rebates are equal in value — consider a $50 Visa prepaid card and $50 in store credit — they may not feel equal to consumers.

Our data shows that picking the wrong rebate can cost you.

• For high-value products with big dollar rebates, the wrong choice could mean missing out on up to $130 in perceived value per customer.
• Turn that around and the picture becomes pretty clear: if you're not optimizing your rebate schemes, you're paying more and getting less.

Clear(ish) winners

Regardless of the size of the rebate or the price tag of your product, consumers want to be paid as close to cash as possible.

In terms of cash equivalents, we mean a handful of things (Venmo, PayPal, bank transfer, Visa prepaid cards). To simplify, we're going to use shorthand for the remainder of this guide.

It's not a huge surprise that cash is popular. I mean, it's cash. But you might be surprised to learn that a Visa prepaid card is roughly equal in the eyes of a consumer:

• A $40 Visa prepaid card is equally as attractive to a prospective customer as a $40 cash transfer.
• Consumers value flexibility — whether it comes as cash or a Visa prepaid card, they'll be maximally motivated to start spending.

The cost of cash rebates

Cash can often be a bit more expensive to administer than gift cards or Visa prepaid cards.

• Cash transfers may come with additional fees that may add up to a few bucks for each rebate redeemed.
• This will vary depending on your preferred incentive delivery service, any additional cost associated with a cash transfer is likely enough to nudge the scale in the favor of a Visa.

Gift cards are viable for smaller rebates

For rebates in the $10-40 range, consumers view digital merchant gift cards on par with cash or Visa prepaid cards.

But there's a catch: flexibility is key.

For smaller rebates ($10-$40)

• Consumers are cool with a gift card if they get to select from a catalog of cards.
• Offering a single gift card option, even to a retailer with a ton of variety like Amazon, is less attractive.

For rebates of this size, consumers devalue an Amazon gift card by a flat rate of $2.83 relative to a comparable cash rebate. That means a consistent drop of $2.83 in perceived value whether it's a $10 rebate or a $40 rebate.

Consumers dislike constraints, not gift cards

You must offer $2.83 more for a single gift card option (like Amazon) to feel equivalent to cash or Visa prepaid card.

• That may not seem like much, but remember the price range for the products that we're talking about.
• If you offer a $30 Amazon gift card after the purchase of a $100 product, losing $2.83 means you've wasted nearly 10% of the value of that spend.
• That difference in perceived value disappears if allowed to choose a gift card from a list of options.

One important note: we do see evidence that younger consumers discount the flexible gift card option. If you're targeting an audience that overlaps heavily with the 25–34 demographic, it's best to stick with cash and Visa prepaid cards.

Higher value rebates change preference

If the rebate is larger — say $100-$400 — a different picture starts to emerge

• All merchant gift cards perform comparatively worse as a rebate option for high value products.
• Larger purchases generally mean bigger promotions. For a $1000 item, a rebate could be worth $100 to $300.
• Restricting such a large sum to a single retailer may be less attractive than $300 in cash or a Visa prepaid card.
• This applies even more to store credit. Not only are they restricted to one merchant, but it's one where they just bought something and might not again for a while.
• Even offering a catalog of options is also less appealing to consumers. Ultimately, they'll still have to commit a large sum to one store.
• At the price point, people overwhelmingly prefer cash or Visa prepaid cards.

Are checks ever a good idea?

In short, probably not.

• Think of gift cards as highly convenient, but extremely inflexible. Their relative perceived value suffers as product price (and the corresponding rebate) increase.
• A check, on the other hand, is the opposite: extremely flexible once it's been exchanged for cash, but a pain in the butt to exchange.
• The bigger a check, the better their perception with consumers, but they're never preferred over cash and Visa prepaid cards.

For instance, if you sent a customer a $30 rebate check for a $100 product:

• Our data shows that that check will be viewed as worth $4.15 less than cash, a loss of about 20% of the rebate's value.
• That's worse than an Amazon card.

On the other hand, consider a consumer buying a $1000 product like a stove.

• A $300 check will feel roughly equivalent to a $300 Visa prepaid card, and (statistically speaking) indistinguishable from $300 cash. But equivalence isn't the same as superiority.
• At this price point, a check does beat an Amazon gift card.
• Checks are, however, more expensive and burdensome to distribute. That tilts the scale enough for checks to be a less attractive option in most circumstances.

Demographics of checks

Age likely matters in the perception of checks.

• Consumers over the age of 65 value checks $10.34 more than their younger counterparts for low value rebates, putting them on par with cash
• Older consumers are also less excited about digital Visa gift cards.

That said, costs associated with sending checks generally outweigh the costs of transferring money. All other things being equal, cash transfers are likely still your best bet for older consumer segments.

Everyone dislikes store credit

Almost never use store credit in rebate programs. Gift cards benefit from convenience and, when offered through platforms that allow for it, flexibility in selecting a retailer. Checks may be less convenient, but ultimately translate to cash. Store credit is neither convenient nor flexible, and consumers value it accordingly.

• A rebate for $30 in store credit loses a shocking $10.61 in perceived value compared to $30 in cash or a Visa prepaid card.
• For higher value products, a rebate of $300 in store credit loses a whopping $139.65 in value. That's nearly a 50% loss.
• High earners, making $100,000+ per year, particularly detest store credit compared to other demographic groups.

How bad is store credit?

Within each of our rebate categories (~$100-400 rebates for higher cost products and ~$10-40 rebates for lower cost products), the differences in perceived value are fixed.

• That means that Amazon gift cards carry the same $2.83 penalty for a $15 rebate as they would for a $25 dollar rebate.
• For the most part the penalty holds stable across dollar amounts, like a flat fee.
• For store credit, however, we found that consumers are less satisfied with each additional dollar offered.
• Each additional dollar is worth less than the dollar before it in the eyes of the consumer.

Is store credit always the wrong option?

Not quite.

It has one redeeming quality: it's cheaper, as long as it gets redeemed. If you offer somebody $300 cash, it's going to cost you $300. If you offer someone a $300 Visa prepaid card, it's going to cost you about $300. You get the point.

Store credit is different: you benefit from the magic of your margin.

• If your gross margin is 5%, that $300 in store credit you give to the consumer will run you $285 if they use every penny of it.
• Now, paying $285 for $160 in perceived value isn't great, but in principle, it's possible for store credit to make sense as a promotional option.

🤔 A thought experiment piecing together an optimized rebate program

To best understand how these concepts tie together, let's run through a scenario. By the end, you'll understand the role that incentive type has on sales.

Who you are

• A large home appliance retailer

What you sell

• Espresso machines retailing for $750 per unit
• You sell 1,000 units per month

Your goal

• Sell more espresso machines
• Sell more accessories and consumables, like frothing cups and cleaning tablets, so you expect more revenue down the line for every unit sold

The promotion

• A $225 (30%) rebate

Estimated sales brought in by the promotion

We can ballpark how sales will increase due to the rebate using promotional elasticity.

• Promotional elasticity measures the increase in sales for every 1% increase in our rebate.
• In this section, we assume a promotional elasticity of 2.
• That means a promotion valued at 1% of the sales price leads to a 2% increase in sales.
• Our 30% rebate should increase sales by 60%.

	Promotional elasticity	Our rebate
Promotion value	1% of sales prices	30% of sales price
Increase in sales	2% increase in sales	60% increase in sales

Which incentive type makes the most sense?

Remember, each incentive type has a different perceived value.

	Cash and prepaid card	Gift card to specific retailer
A $225 promotion feels like	$225	$191
Expected increase in sales	60%	50%
Total units sold	1,600	1,500

⭐ Recall: Cash & Visa prepaid cards are statistically indistinguishable in our analysis

For instance, gift cards constrained to a single retailer (like Amazon) are considered $34 less valuable than cash for a $225 rebate.

That reduction in perceived value translates to 100 less espresso machines sold.

Cash or Visa prepaid cards drive the greatest overall increase in sales.

• Amazon gift cards are a distant third.
• Offering a catalog of gift card options is fourth.
• Far and away, the least effective incentive is store credit.

Factoring in rebate claim rate

Now, we layer in claim rate, and calculate the total cost of the rebate.

Rebate cost = Promotion's perceived value * (units sold * redemption rate)

Attributes	Cash and prepaid card	Amazon gift card
A $225 promotion feels like (aka perceived value)	$225	$191
Expected increase in sales	60%	50%
Claim rate	81%	78%
Rebate cost	$290,699	$263,969

Our research suggests:

• Claim rates for a $225 cash rebate are around 81%.
• Claim rates for a $191 rebate (the perceived value of your $225 Amazon gift card) are around 78%.
• A cash incentive would cost you around $290,699.
• The Amazon gift card method costs $263,697.

Yes, using Amazon gift cards will lower the overall cost of your rebate program, but only because it's worse at driving sales. When you break out costs for each additional unit sold, a new story emerges.

	Cash and prepaid card	Amazon gift card
A $225 promotion feels like	$225	$191
Expected increase in sales	60%	50%
Total units sold	1,600	1,500
Claim rate	81%	78%
Rebate cost	$290,699	$263,969
Cost per additional sale	$484	$518

• For the cash option, you offered 1,600 rebates; 1,292 of which were redeemed. You paid about $484 for each additional sale.
• If you used Amazon Gift Cards, you paid $518 for each additional sale.

💡 Remember

• When you run a promotion, you offer it on all sales, not just the sales attributable to the promotion
• This means you have to pay out the promotion for all sales — including the ones you would have made anyways
• That's why the cost per additional sale is greater than the value of the promotion

Cash rebates are king

• These numbers and estimates are based on assumptions we made on rebate size and promotional elasticity.
• We tested our conclusions with different parameters and assumptions including
• Promotional elasticities of 2,3,4, and 5
• The results were the same.

The takeaway: Bad consumer rebates cost more and yield less sales

A good rebate program can net you 50% more sales with the same budget. The wrong incentive costs you more and generates less sales.

When building a rebate program, remember:

• The average rebate is 30%.
• Don't sweat the language, but "earn" might be best.
• Frame the rebate as dollars off, not a percentage off.
• Delay the rebate a few days.
• And offer cash or prepaid card.

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⚙️ Methodology

The aims of this research, conducted in May 2023, included:

• Understanding customers' relative preference for different rebate types and ways in which rebates are presented.
• Testing whether rebate preferences differ for certain groups of customers.
• Updating the estimated claim rate for digital rebates.

Experimental design

We used a two-stage discrete choice experiment (DCE). DCEs include a set of realistic, randomly generated options that participants choose between. For example, participants may be asked to select between a series of realistic promotional offers where the rebate attributes vary randomly. By analyzing a large number of these choices, we gain insight into preference.

Following the DCE, some participants were given the offer to redeem a conditional incentive. This was used to estimate claim rate at a variety of rebate values.

We used a large online research platform to test 500 people living in the US, divided equally between male and female participants. Each individual made 13 decisions, giving us a total of 6,500 data points.

Discrete choice experiment: stage 1

We tested customer preferences for different types of rebates and whether this changes with the size of rebate or the type of product. We also tested whether framing the redemption process as 'easy' impacts the value of the rebate.

This structure was applied to two different price points:

• High-value products with a retail price of $1000
• Low-value products with a retail price of $100

Example of a stage 1 choice:

Discrete choice experiment: stage 2

Our second stage focused on framing. Promotional offers varied on the basis of whether the incentive was described as a rebate or a discount, whether the redemption process was described as easy, the language used to frame the claim, and whether a dollar value or percentage of product price was used to communicate the amount. Here each participant made three choices.

In both stages, we gathered demographic data (age, income, employment status) to test preferences between groups, and used attention checks to gauge data quality.

Claim rate

To bring research on claim rates into the 21st century, we offered 275 lucky participants the chance to claim a conditional incentive. Once both DCE stages were complete, we offered the first 275 participants an additional payment, ranging from $0.50 to $200 CAD, separate from their payment from the research platform.

Number of rebates offered by rebate value

Rebate value	Offers
$0.50	40
$2.00
$3.50
$5.00
$10	30
$20
$50
$100
$200

Attributes under experiment

Payment value

• $0.50 to $200

Redemption framing

• "The process to redeem your reward is quick and simple"
• No additional framing

Ease of redemption process

• "To redeem your reward, please complete the short arithmetic task and enter your email address on the next page"
• "To redeem your reward, please enter your email address on the next page"

Ease of redemption process

• "To redeem your reward, please complete the short arithmetic task and enter your email address on the next page"
• "To redeem your reward, please enter your email address on the next page"

Promotional wording

• "Get back"
• "Receive"

Dollar or percent framing

• Dollar amount
• Percentage of sales price

Analysis

Discrete choice experiments

Consistent with Hainmueller, 2014, we used a linear regression model to estimate the utilities/value associated with the levels of each attribute in each DCE. Only interactions that were significant at the 95% confidence level were reported. For each stage, we used separate models to test:

• the main effect of each attribute
• interactions between attributes
• interactions between attributes and demographic factors

We estimated separate models for high- and low-priced products, allowing us to identify how preferences change depending on the price scale.

Each model included an estimate associated with changes in the size of the rebate. This estimate can be interpreted as the perceived value of an additional dollar added to the rebate. We used this estimated value of an additional dollar to convert the differences in perceived value between attribute levels into dollar values.