Did you ever get so annoyed with getting the rebate on something you purchased that you just gave up? I found a really nice article about this kind of pricing strategy that companies use:
The cynicism in this story is hilarious, but the author also brings up a good point. Why don’t sellers just keep it simple and cut prices instead? Yes it’s true that people are initially attracted by the lower price, only not to collect the rebate because it is too much of a hassle. I must say that I have figured out a long time ago not to be persuaded by such offers. Experience has taught me that companies always make things too difficult for me. I would rather search for a place where I actually get the discount right away. But there still are a lot of people that can be tricked with this pricing strategy. This article explains that such pricing strategies are partly driven by what is called the ‘prospect theory’. This theory is based on the idea that: ‘People judge the loss of any given amount as more painful than they judge the gain of an equal amount as pleasurable’. The rebate is viewed as a reduction in a loss, but after the deal is done the rebate all of a sudden starts looking like a gain, and therefore less important. That is why so many people don’t bother to collect. Furthermore rebate pricing is a form of price discrimination. The people that are more sensitive to money will put up with the hassle, whereas the less price sensitive consumers will not. In this way the seller can take away some of the consumer surplus. So apart from the vengeful types that become so annoyed that they will do anything to collect the rebate and might never do business with the seller again, in general this pricing strategy works. Or might the number of negative impacts outweigh the benefits?