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1. This article describes one reason manufacturer might want to offer rebates rather than decrease wholesale price. Explain why this can be viewed as an example of customized pricing
The case study describes one reason manufacturer might want to offer rebates rather than decrease wholesale price. Simchi-Levi et al.(2008) noted that consumer product makers such as Procter & Gamble pioneered rebates in the 1970 as a nitty way to advertise small discounts without actually marking the price down, The reason why rebates are popular is because while it pushes consumers to purchase products many rebates are not claimed – about 40% of rebates are unclaimed totaling more than $2 billion extra revenue to retailers. Simchi-Levi et al.(2008) noted that what the rebates do is get consumers to focus on the discounted price of a product, then buy it at full price(p. 402).
Using rebate instead of price reduction can be viewed as an example of customized pricing because some people may not spend time on redeeming rebates. It is an example of customized pricing because it factors both the customers who really need rebate and those who are looking for the quality product without worrying about price. Customized Pricing is a method of determining the price for a good or service based on the perceived expectations of customers. Obermiller C, Arnesen D & Cohen M (2012) noted that with customized pricing, identical products are delivered, regardless of time or situation, to different consumers at different prices. Customized pricing can also be dynamic pricing, if each consumer is presented with a price that is determined by an estimate of that individual demand for a given product, in a specific situation and time. Many markets feature dynamic pricing that is not individualized.
Even if all rebates were redeemed, why might manufacturers still want to offer rebates rather than decrease wholesale prices?
One of the reasons why manufacturers might offer rebates rather than decrease wholesale prices even if all rebates were redeemed because while rebates attracts more consumers to store, a reduction in wholesale prices might not.
Also applying rebates instead of decrease in wholesale prices have an impact on profitability and costs. Demirag, et al. (2009) noted that manufacturers use promotions directed to the end customers and/or retailers in their distribution channels to increase sales and market share. The consumers pay the full price, and this increases the company’s cash flow as well as sales volumes and boost stock price. When the rebates are redeemed, it is recorded as an expense. Overall, rebates increases profitability even if they were redeemed because of increased sales which wouldn’t have been achieved with decrease in wholesale prices.
3. Why do you suppose the Best Buy, rather than one of Best Buy’s big suppliers such as Sonny or Panasonic, is considering eliminating rebates?
While Demirag, et al. (2009) noted that manufacturers use promotions directed to the end customers and/or retailers in their distribution channels to increase sales and market share some companies like Best Buy plans to eliminate rebates. But why must Best Buy, rather than one of Best Buy’s big suppliers such as Sonny or Panasonic, consider eliminating rebates? The reason is basically because, those suppliers like Sony or Panasonic do not process the rebate and the price they offer their product to Best Buy allow them to maximize their profits. Best Buy offering rebates effects their profitability because their pre-rebate price often matches and/or even beats the price of many other retailers.
Additionally, processing rebates takes time and costs, and these are one of the things Best Buy is trying to avoid as well as protecting its image from negative publicity associated with untimely or error in processing rebates
Demirag, O .C.; Baysar. O.; Keskinocak. P. & Swann J.L (2009). The effects of customer
rebates and retailer incentives on a manufacturer’s profits and sales. Accessed on October 8, 2018 from https://doi.org/10.1002/nav.20390
Obermiller C, Arnesen D & Cohen M (2012). Customized Pricing:Â Win-Win or End Run?
Drake Management Review, Volume 1, Issue 2, April 2012. Accessed on October 8, 2018 http://faculty.cbpa.drake.edu/dmr/0102/DMR010204R.pdf
Simchi-Levi et al.(2008). Designing and Managing The Supply Chain Concepts, Strategies
and Case Studies(3rd ed). McGraw-Hill/Irwin, New York, NY