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How Marketing Research Protects Consumers: The Case of Rebates

Professor Tim SilkSauder School of Business

University of British Columbia

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Controversies:

1. Low redemption rates

2. Not getting paid

3. Onerous effort

Policy issues:

1. Laws inconsistent

2.Make rebates easier?

3. Longer deadlines?

4. Ban rebates entirely?

The Issues

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Psychology Economics

Consumer Behavior

How Do Our Biases Affect Consumer Decision Making?

What Role Can Research Play?

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We all fall victim to natural human biases

We are mostly unaware of our biases

We think we make good decisions

But we often make lousy decisions

Biases in Decision Making

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Consider this offer

Offer A:

Rebate must be postmarked by March 15, 2011

Offer B:

Rebate must be postmarked by March 31, 2011

1.

Which offer looks more attractive?2.

Which offer will have the higher redemption rate?

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What’s the Conventional Wisdom?

Giving people more time to redeem will:

Increase the redemption rate: 57%

Have no effect:

40%

Decrease the redemption rate: 3%

Reasoning:•

“If you give people enough time, they’ll eventually get around to it.”

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We Ran A Study…

How will people really respond?Experiment: Offered 1233 consumers a rebate on movie tickets.

Manipulated: 1. Size of rebate2. Length of deadline3. Effort required to redeem

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ReturnRebate Purchase Opportunity

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Larger rebates and longer deadlines increase purchase.

What Drives Purchase?

17%

24%

8%

16%16%

10%

0%

5%

10%

15%

20%

25%

30%

1-Day 7-Day 21-Day

Deadline

Prop

ortio

n th

at P

urch

ased

$9 rebate $6 rebate

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What Drives Redemption?

70%63%

50%

81%77%

64%

30%

40%

50%

60%

70%

80%

90%

1-day 7-days 21-days

Deadline

Red

empt

ion

Rat

e

Low Effort High Effort

But longer deadlines decrease redemption rates.

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Reasons for Redeeming

And effort is not the only reason…Over half of non-redeemers never start the process…

So it can’t just be about the effort…

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What Drives Redemption?

70%63%

50%

81%77%

64%

30%

40%

50%

60%

70%

80%

90%

1-day 7-days 21-days

Deadline

Red

empt

ion

Rat

e

Low Effort High Effort

In fact, increasing effort increased redemption rates.

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Bias #1: Overconfidence

93.5

53.749.6 51.0

30

40

50

60

70

80

90

100

Confidence Rating Redemption RateEstimate

Rebate Buyers

Non-Buyers

Buyers are highly confident, but confidence ≠

redemption.

93.2

54.0

94.1

53.1

30

40

50

60

70

80

90

100

ConfidenceRating

Redemption RateEstimateRedeemers

Non-Redeemers

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HistogramBias #2: Procrastination

4.3

1.2

0

2

4

6

8

10

12

14

1-Day 7-Day 21-Day

Application Deadline

Day

s

Days between purchase and starting application:

0.7

Days between starting and submitting application:

12.4

1.3

5.2

2.82.3

0

2

4

6

8

10

12

14

1-Day 7-Day 21-Day

Application Deadline

Day

s

Longer deadlines encourage procrastination

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% change in Sales(“Lift”)

Rebate$20$10$5$1

Data: 3336 promotions, CPG & light durables $1 -

$20 Rebates

What Drives Purchase?

200%

150%

100%

50%

1-25% 26-50% 51-75% 76%+Percentage Discount

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1.

Discount percentage has stronger effect on lift than the dollar value of the rebate.

2.

Lift is increasingly sensitive to changes in the discount percentage as the % increases.

3.

Suggests consumers frame rebates as a percentage discount off the list price.

Key Findings:

Implication:

•

$5 rebate on $10 item (50% discount) can appear more attractive and generate more lift than a $10 rebate on $40 item (25% discount).

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a)

Increasing the rebate dollar value. •

Effect of dollar value is greater than discount percentage.

What Drives Redemption Rates?

Rebate$20$10$5$1

RedemptionRate

60%

40%

20%

1-25% 26-50% 51-75% 76%+Percentage Discount

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1. At time of purchase, people tend to be overconfident about their likelihood of redeeming.

2. Longer deadlines make the offer look more attractive, but make us less likely to redeem by fostering procrastination.

3. Many people never start the process.

4. Increasing effort angers people and increases the motivation to redeem. I’ll show you, I’ll get my $!!!

• Implication: Do it now!

What Did We Lean?

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1. Research presented to Federal Trade Commission, Competition Bureau of Canada, other policy officials.

2. Advised on new rebate guidelines issued by Competition Bureau of Canada.

3. Policy analysis identifying rebate legislation as helpful or harmful to consumers.

1. Deadlines should be disclosed.2. Longer deadlines not necessarily helpful.3. Effort requirements should be disclosed.

How Did This Research Influence Policy?

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Some perceptions I’d like to change:

• Academic research doesn’t relate to the real world.

• Research in marketing benefits firms, not consumers.

• Marketing is evil.

How you can support research:

• Voice you support for federally funded research like SSHRC.

• Attend talks and generate dialogue in the community.

• Support your local universities.

Research and the Public Interest

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Thank you

Questions / Comments?