Here is the answer to the rebate puzzle/question: the key is the supply chain. Just in case there is someone who is not very familiar with Rebates - these usually come in a form of a mail-in rebate - you have to mail your receipt and a part of product packaging that would grant you 1 rebate per product purchased. Here is a bit of a high level overview for a weekend reading. If you are impatient, skip to step 3.
1. For a consumer there is almost no difference between a rebate and a discount. The main difference is that rebate works like a delayed discount (you have to mail it in and you have to wait a few weeks/months to get your check via mail). There are of course those situations when people forget to mail them, or don't get the check back, or are denied a rebate for some minor detail. Outside of those several scenarios that impact probably less than 20% of consumers, rebate and discount are identical.
2. For a manufacturer, a rebate is similar to a discount as well in a number of ways - it is reduction of a price on a product and it costs them money to process (open mail, verify, and mail checks back) so whatever they gain by people forgetting to mail rebates in, they lose on the processing side. Rebates have an additional benefit and sometimes allow companies to delay discounting and inflate revenue at the end of a year.
3. However, very few of us buy cars, TV's, or electronics directly from a manufacturer. We usually get them from a car dealer, Electronics store or and online retailer. Here is where the big difference comes in - relationship between manufacturer and distributors, esp. independent ones. Rebates allow manufacturers to pass savings directly to the consumer, cutting out the middle man. There are a number of reasons they may want to do that. The best example and the one my professor used was a car dealership. Let's assume Ford came out with a new $40K electric car that they sell to dealers for $35K. It is a gamble and Ford is asking thousands of independent Ford dealers to support it. Loyal dealers agree to support and commit to buying hundreds of cars at $35K to put into their show rooms. The not so loyal ones, decide to wait and see.
Now, let's say that particular car is not selling well - only 10,000 sold in a year but Ford already made 100,000 of them and the loyal dealers had bought 50,000. Dealers want to get rid of the inventory since it takes up space and costs interest on financing but they don't want to lose money on a bad car Ford made. Ford wants to get rid of the inventory too, and their research shows that they can sell them all at $30K to consumers, which means the dealer price needs to be $25K. If Ford discounts the car down to $25K for dealers, then all the non-loyal dealers will jump on the deal and make a bunch of money and the ones who agreed to support Ford will be stuck with $35K cars, resulting into 5K loss per car (Ford will quickly run out of loyal dealers). However, if Ford issues a $10,000 rebate to consumers, then the Loyal dealers can still sell their cars for $40K each and make money, and the not-so loyal dealers want to get in on the action, they will still have to pay the same old $35K price per car to buy them.
Ultimately rebates are pricing mechanisms that allow manufacturers to reward loyal distributors and maintain price parity across the distribution channels.
PS. This is a good example (I think) of an everyday situation that requires thinking outside of the box.
_________________
Founder of GMAT Club
GMAT Day is Coming! - Awesome way to turbocharge your GMAT Prep with expert panels, breakout rooms, free prep resources, and Prizes!
Just starting out with GMAT?
Start here with a Study Plan... WAMC! - What Are My Chances - Automated Profile Evaluation Tool is Here!
New! My Ultimate GMAT Focus Score Calculator