Menards, the big-box home improvement store, advertises that everything in the store is 11% off. That sounds great! Who doesn’t want to save 11%? The problem is that in order to enjoy the discount, you have to fill out a rebate form by hand and snail mail it with the receipt. Six to eight weeks later, the 11% rebate comes as a store credit. Then you have to remember to take your credit with you the next time you visit Menards. Quite the hassle, and one the majority of shoppers don’t mess with.

Breakage and Slippage

Stores and manufacturers who provide rebates count on consumers not jumping through all the hoops to claim their rebates. Purchases where the customer never requests the rebate are known as “Breakage.” And breakage is common. In a 2005 article Bloomberg noted that it is an “open secret that fully 40% of all rebates never get redeemed because consumers fail to apply for them or their applications are rejected.” Other estimates are much higher — some industry experts think that rebates are completed in less than 10% of eligible purchases. That is a lot of breakage!

And there is “Slippage” which is the term for rebates that are never redeemed — meaning the rebate check never gets cashed or the merchandise credit is never used. Add slippage on top of breakage, and you can see why rebates are offered: it’s a sure-fire way to manipulate consumers by offering a discount that mostly never is claimed. As Bloomberg noted, “What rebates do is get consumers to focus on the discounted price of a product, then buy it at full price.”

Other Benefits to Companies for Offering Rebates

Even when customers complete the rebate process and cash the rebate check, there are still benefits for the store or manufacturer:

• The float. Weeks or months typically pass between a rebate-eligible purchase and the consumer redeeming the rebate. During this lag time, the company earns interest on the rebate amount.

• Data mining. The company can learn valuable information about their customers when they fill out rebate forms. Things like their name, email addresses, and physical addresses. This information can be valuable for future marketing campaigns and learning about consumer behavior.

Tax on the Lazy and Disorganized

One way to think about breakage and slippage is that they result because a substantial portion of consumers are too lazy or disorganized to take the steps to redeem their rebates. True. And I’m as guilty as anyone when it comes to not completing the rebate process. Last year I bought contact lenses that came with a nice rebate. To claim the rebate I had to print off a form from the internet, fill it out by hand, and mail it in with the receipt and the barcodes from the boxes. I printed the form and it sat around for months. I was proud of myself when I finally collected everything and mailed it off. Then a few weeks later I received an email that I had submitted the rebate claim too long after purchase. UGH. There are many other examples I can think of where I never submitted the rebate. Plus, I have merchandise credits sitting unused in drawers in my house. Double ugh.

And sometimes, it doesn’t seem worth it to go through the hassle. I intentionally don’t claim my 11% rebate from Menards if it’s just going to be a few dollars, which is stupid. It only takes a few minutes.

So, what should we take from this IFOD?

First and foremost, realize that rebates are manipulative. If the seller wanted you to have the discount, they’d just discount the price without any effort on your part! Take that manipulation into account as you are comparison shopping.

Second, claim the rebate right away. Interestingly, rebates with shorter stated claim periods have a higher redemption rate than those with longer deadlines. Thus, procrastination leads to less followthrough.