Customers need compelling reasons to choose your products. Maybe you sell something they can’t live without, or maybe you’re giving them a good deal.
Rebate programs are an effective, yet underutilized tool to drive sales, boost loyalty, and increase profit margins without direct discounting.
Ahead, learn the different types of rebates and how they compare to discounts, so you can inform your pricing strategy.
What is a rebate?
A rebate is a partial refund customers get after buying something. It’s like a delayed discount that comes back to them later.
Here’s how it typically works:
- The customer purchases a product at full price.
- The manufacturer or retailer offers a rebate on that product.
- The customer fills out a form and sends a proof of purchase.
If they’ve met all the requirements, they receive some money back, often via a check or an electronic transfer.
Companies use rebates to attract customers without permanently lowering their prices. They can make products seem more affordable, although rebates also require extra effort from the buyer. Some people forget to claim their rebates or miss the deadline.
Common rebate amounts are $10, $20, or a percentage of the purchase price. You might offer them on electronics, appliances, or smaller items like groceries or personal care products.
Rebates vs. discounts
A discount is a reduction in the original price of a product or service, offered directly at the point of sale. When you see the “20% off” sign at your favorite store, that’s a discount in action.
| Discounts | Rebates | |
|---|---|---|
| Type of strategy | Upfront price reduction | Post-purchase reimbursement |
| Who uses them | Retailers, service providers | Manufacturers, some retailers |
| When they are used | Instant savings at checkout | Refund after claim submission |
| Contract required | No paperwork needed | Requires proof of purchase |
| Complexity | Simple | More steps, waiting required |
Rebates and discounts differ in many ways.
Type of strategy
Discounts and rebates are two different approaches to saving money.
Discounts are an upfront price reduction strategy, meaning the customer sees the savings immediately. Rebates work more like a post-purchase reimbursement plan. The customer pays the full price now, but gets some money back later.
Who uses them
Retailers and service providers typically offer discounts. They’re a popular method for attracting customers and boosting sales quickly.
Rebates are often the tool of choice for manufacturers, though some retailers use them for specific promotions. The choice often depends on the business’ goals and the nature of the product.
When they are used
The timing of these offers is a key distinction. Discounts give customers instant gratification. The price is reduced right when they make the purchase, so they know exactly what they’re paying as they check out.
Customer rebates require a bit more patience. Customers pay the full price upfront and then submit a claim to get some money back later, which could take weeks or even months.
Contract required
Discounts keep things simple. The reduced price is offered to all eligible customers without any extra steps.
Rebates involve a bit more paperwork. Customers might need to fill out forms and provide proof of purchase, which acts like a mini-contract between them and the company offering the rebate.
Complexity
Discounts are pretty straightforward—what you see is what you get. Customers can easily compare prices and make quick decisions.
Rebates involve a few more steps and some waiting time before the consumer sees the money returned. Getting a rebate requires more planning and follow-through on the part of the consumer.
💡 Want to create discounts for your store? Use Shopify’s Automatic Discounts tool to give your customers discounts that apply at checkout and in their cart.
Types of rebates
Rebates come in various forms and serve different purposes. Here’s a breakdown of the common types.
1. Tax rebate
A refund from the government for overpaid taxes. This can happen for various reasons, such as changes in tax laws, overpayment through payroll deductions, or qualifying for deductions you weren’t aware of when you first filed.
2. Cash rebate
Money returned to you after a purchase is essentially a post-purchase discount. You buy something and later receive a portion of the cost back in cash.
3. Delivery rebate
A partial refund on shipping costs for online or catalog purchases. It’s the seller’s way of reducing the customer’s delivery expenses.
4. Instant rebate
An immediate discount applied at the point of sale. You see the savings right away on your receipt, with no need to wait or submit forms.
5. Manufacturer rebate
A rebate program offered directly by the product’s maker, bypassing the retailer. It’s often used to promote new products or gain market share against competitors.
6. Flat-rate rebate
A fixed amount returned regardless of the purchase price. Whether you bought a $100 or a $1,000 item, you get the same rebate amount.
7. Percent rebate
A proportion of your purchase price returned as a rebate. The more you spend, the larger your rebate becomes.
8. Sales rebates
Incentives offered to salespeople or companies for selling specific products. It’s a way to motivate the sales force to push certain items.
Customer
A rebate offered to the end consumer, often requiring some action like filling out a form. This is the most common type of rebate encountered by shoppers.
Supplier
A rebate given to businesses by their suppliers, often to encourage larger orders. This is a B2B transaction that can impact a company’s purchasing decisions.
9. Volume rebate
A rebate that increases based on the quantity purchased. The more units you buy, the bigger your rebate grows, incentivizing bulk purchases.
10. Loyalty rebate
A reward system for repeat customers or members of a loyalty program. It offers cash back or discounts based on cumulative purchases over time. This type of rebate encourages customer retention and encourages customers to concentrate their spending with a particular brand or retailer.
11. Competitor price match
A rebate offered by retailers to match or beat a competitor’s price on the same product.
If a customer finds a lower price elsewhere, the retailer refunds the difference, often with an additional discount. It’s commonly used in electronics, appliances, and other high-value product categories where price comparison shopping is common.
💡 Get the Rewardify Shopify App to issue rebates across both your POS and online store.
Rebate example
As a small electronics store owner, you offer a rebate on your latest smartphone model. You price it at $600, with a $50 mail-in rebate. Customers pay the full price upfront and then submit a form to get $50 back.
This strategy allows you to advertise a lower effective price without immediately cutting into your margins. It also gives you valuable customer data and encourages future visits when customers redeem their rebate check in-store.
Considerations for using rebates
Many retailers and consumers view rebates as a win-win situation, but there’s an argument to be made that rebates benefit businesses over consumers.
That’s because of “breakage,” which means customers don’t redeem the rebate because they forget or find the process time-consuming. The allure of “getting money back” can be enticing and is an easy promotional tactic with little overhead cost.
To make sure your customers get the most from your rebates, follow these guidelines:
- Make the submission process simple and offer both online and mail-in options.
- Set submission deadlines that align with your cash flow needs while still giving customers ample time to participate.
- Consider seasonal promotions to boost sales during traditionally slower periods.
- Test different rebate amounts to drive sales without overspending.
Clear communication with your customers about terms, conditions, and rebate status is important. Train your staff thoroughly on the rebate process so that they can confidently explain it to customers.
Earn more sales with rebates
Rebates are an effective tool for businesses looking to drive sales while maintaining price flexibility. Understanding the various types can help you better use rebates to attract and retain customers. If discounts are more your thing, you can use Shopify POS to integrate discounting programs across your sales channels and create a unified customer experience.
Rebate FAQ
What is a rebate, and how does it work?
A rebate is a partial refund of the purchase price of a product or service. It typically requires the buyer to pay the full price upfront, then submit a claim form with proof of purchase to receive a portion of the money back later.
What is rebate with an example?
A rebate is a post-purchase refund offered as an incentive to buy. For example, a store might sell a laptop for $1,000 with a $100 rebate offer. You pay $1,000 at checkout, then submit a form to the manufacturer, which later sends you a $100 check.
Is a rebate the same as a refund?
While both involve getting money back, a rebate and a refund are different. A refund typically repays the full purchase price when an item is returned, while a rebate is a partial repayment on an item you keep, often requiring you to submit a claim.
What is the difference between a rebate and a discount?
A discount reduces the price at the point of sale. A rebate requires paying the full price initially, with the savings coming later after submitting a claim. Rebates often require more effort from the buyer but can sometimes offer larger savings.
